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The requirements of passing on real estate to loved ones

by | Jul 16, 2014 | Trusts |

People in California know that estate planning can be a complicated matter, rife with the pitfalls of extra taxation, legal complications and even the hassle of going through probate when assets aren’t accounted for properly in the estate plan. Even the simple act of leaving a home or other piece of real estate can be tricky for those who try to do it themselves.

Unfortunately, high net worth individuals often have even more complex estate planning needs when it comes to leaving behind a piece of real estate. If the home in question is valued at over $3 million, additional taxes may apply, saddling the person who inherits it with tremendous tax bills they may not be able to pay.

One solution for passing down high-value homes is to create a Qualified Personal Residence Trust, or QPRT. This type of trust allows a person to reduce the taxable value of their home based upon the number of years they have lived in the property. The longer the period of residency, the greater the discount on this type of tax exposure. This will help reduce estate taxes and minimize the tax burden that will eventually fall on the person who is inheriting the property. But the details are crucial in order to properly set up this type of trust and handle trust administration issues, as well as ensuring that the property passes down to the proper beneficiary.

In addition to a QPRT, people may want to discuss setting up a maintenance fund for the beneficiary of the home to be able to pay for upkeep and improvements on the home, as well as shouldering that initial tax burden. With a combination of the proper financial and legal instruments, people can get the most out of their estate plan and ensure their home remains worry-free for years to come.

Source: Forbes, “Passing Down Your Home? 3 Steps To Creating A Successful Estate Plan,” June 30, 2014

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