Leaving your house to your children in your estate is easy to do. Leaving your house to your children so it can stay in the family for generations to come is a different story. When passing assets on to your heirs, you must consider the total amount of your estate, how it will be taxed, and what assets you have that can pay the taxes to prevent needing to liquidate the house for finances.
- Skill level:
- Moderately Easy
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Create a Last Will and Testament or an estate plan with a trust. These documents state who receives what assets in your estate. Contact a family law attorney to properly draft either one or both of these documents.
Fund the trust by transferring the house title to the trust. By doing this, the trust is the owner of the property with you as the trustee. If you don't have a trust, you do not need to fund it and can move to the next step.
Value your estate by adding up the total value of real estate, savings, automobiles, investments and retirement plans. Include the total value of life insurance proceeds that will be paid upon your death. While beneficiaries don't pay taxes on life insurance, the face value is considered as part of the aggregate value of your estate.
Calculate how much tax will be owed on your estate upon your death. This should include the Federal Estate Transfer Tax as well as state inheritance taxes. While 2010 has an unlimited exemption with the tax repealed, you will only be able to have a £650,000 exemption starting in 2011 with a 55 per cent maximum estate tax on values over this amount.
Apply for life insurance that covers the amount of taxes that will be owed upon your death. While the value of the life insurance increases your estate, it creates a liquid cash value that can pay the taxes without having to liquidate property.
Tips and warnings
- In many states, an estate plan needs to contain a Last Will and Testament as part of the trust document.
- Speak with a tax adviser to fully understand your personal estate and how taxes can erode its value.
- Many people try to leave their homes to children by adding the offspring to the title of the property. However, the IRS may consider this to be a gift, and if the value is in excess of £8,450 (as of 2010), you may be penalised by the IRS.
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