What happens to my property without an estate plan?
The federal tax threshold is high with your estate needing to exceed $11.5 million for an individual or $23 million for a married couple to be subject to the federal estate tax. Some states, however, have much lower thresholds, around $2 million. Estates can quickly add up to much more than one may anticipate after everything is counted. The threshold for state estate tax depends on where you live. If your state’s estate tax threshold is below the value of your property, or overall estate, your beneficiaries could be subject to tax.
How does estate tax apply to real estate?
After you die, your estate may be subject to tax, and this includes the real property or real estate that you own. While both federal and state governments have income-based exemptions eliminating or reducing estate tax for people not considered to be in high income brackets, high-value real estate may still be subject to taxation, particularly at the state level.
Some property owners may gift real estate, and other assets, to beneficiaries to avoid this scenario. Gifts, however, are limited under the current annual gift tax exemption. Estate planning can help lessen the tax liability.
What tools can real estate owners use to plan their estates?
The first step typically involves understanding the size of your estate. While a Will is useful for distributing your real property, a trust may be a better estate plan tool for real estate. A trust may help you maintain property ownership while you live, and you can pass on your assets in the trust without paying gift or estate taxes.
A Living Trust can allow you to put property into the trust while you retain the right to live in that property. The terms of the trust can automatically pass the property to your beneficiaries when you pass away, without going through probate.
Making a financial Power of Attorney can be another useful tool, allowing someone else to make real estate decisions regarding your property if you become incapacitated. This is similar to a Medical Power of Attorney, which permits someone to make healthcare decisions on your behalf if you are unable to do so.
Can I protect my spouse’s home in my estate planning?
How your property is titled or how you own the property with your spouse or anyone else matters. For example, if the right of survivorship is listed on the deed or title, this means that a co-owner automatically assumes ownership of the real estate after the other co-owner passes away. If you are married and have children from a prior relationship you want to give your home to, but also want your spouse to be able to live there, the right estate plan can accomplish that. Estate planning can be complex, but with the right tools and guidance, you can make a plan for your family’s future.
If you have more questions about including your property or home in your estate plan, reach out to a Rocket Lawyer network attorney for affordable legal advice. If you need tax help, Rocket Lawyer can now match you with a tax pro for affordable and convenient tax filing services. Don't do your taxes™ - Let us do them for you.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.