During the estate planning process, many families struggle with what to do with the family home. Our homes are major financial assets that may also have sentimental value. However, determining the best way to pass on the family home can be complicated. Those who have questions regarding estate planning and the family home can understand their options by discussing their plan with an experienced estate planning lawyer at The Law Office of Aubrey Carew Sizer PLLC: contact us at (571) 403-2619 to learn more.
Should The Family Home Be Included in A Will?
A Last Will & Testament (will) is one option available for passing on the family home, however, there are some challenges with including the family home in a will. Assets included in wills must go through the probate process, which means there may be a delay before an heir receives the home. Additionally, homes included in wills often have higher tax burdens compared to other estate planning options.
Are Trusts a Good Option For Family Homes?
Many estate plans delegate assets to beneficiaries through trusts, which have numerous benefits. Unlike wills and other parts of estate planning, trusts do not have to go through the probate process. Virginia does not have a state estate tax, and it is also possible that trusts can reduce estate taxes. When a family home is put into a trust, family members often inherit the home faster than they would if it were part of a will.
Many estate plans include both trusts and wills, depending on the needs of the family and their assets. Determining the best option for your circumstance can be challenging and overwhelming. Consider receiving assistance from The Law Office of Aubrey Carew Sizer PLLC. Those who are considering including their Virginia home in a trust have two main options: revocable living trusts and irrevocable trusts.
Revocable Trusts
Also known as a living trust, a revocable trust offers homeowners flexibility and allows them to maintain control of the home throughout their lifetime. This helps ensure that the homeowner does not lose their home as a result of becoming incapacitated in some way, such as being diagnosed with a cognitive disorder later in life. In some cases when the homeowner becomes incapacitated, control of the home transfers to someone else, who could potentially sell the property.
Unlike irrevocable trusts, revocable trusts can be dissolved at any time if needed due to changing circumstances or preferences of the grantor. A homeowner can also name themselves as a trustee or co-trustee. This allows the homeowner to keep control of the trust during their lifetime, but they can also name a successor trustee who can manage it in the event of their death or incapacitation.
Irrevocable Trusts
As the name suggests, irrevocable trusts cannot be changed by the grantor once the trust has been legally executed. This may sound like irrevocable trusts would be inferior, however, there are many benefits of putting the family home into an irrevocable trust.
When a home is put into an irrevocable trust, the trust becomes the legal owner of the home. This can protect the home in situations where it could be lost if under the direct ownership of a family member, such as in circumstances involving divorce. Homeowners have the option to include specific terms, such as when the home can be sold, and which family members can live in the home. Additionally, irrevocable trusts can reduce help reduce estate taxes and the tax liability on the income generated by trust assets.
Can the Family Home Be Given Away as a Gift?
Gifting the family is a possible option for those looking to lessen their tax burden, especially those with high-value estates. According to the 2021 IRS Tax Code, estates valued at over $11.7 million are subject to a 40% federal estate tax. Gifting a home or another major asset during the owner's lifetime can help avoid this tax burden. There are other tax considerations to take into account for those considering gifting as an option for estate planning and the family home. Consider visiting with an experienced estate planning attorney to learn more.
Annual Gift Tax Exclusion
Under the 2021 Annual Gift Tax Exclusion, a gift up to $15,000 values is considered tax-exempt. This exclusion is applied on a per-recipient basis. So for example, someone who gifted $15,000 to each of their three children would not have to report the gift to the IRS. Additionally, those who receive gifts of $15,000 or less do not need to report the gift as income but are required to report any income or interest generated directly from the gift.
For gifts valued at over $15,000, the excess amount is the taxable amount. For example, someone who gifted a family member $20,000 would have to pay the gift tax for $5,000 of that amount.
Lifetime Gift Tax Exemption
Although gifts over $15,000 must be reported to the IRS, most people never need to pay gift taxes due to the Lifetime Gift Tax Exemption. When gifts are reported in annual tax returns, the amount of the gift is deducted from the giver's lifetime gift tax exemption, which is $11.7 million as of 2021. This means that all gifts up to $11.7 million are tax-exempt. As a result, homeowners whose properties are less than that amount can potentially avoid the federal estate tax by gifting their home to a family member.
Contact an Attorney for Help With Estate Planning and the Family Home
Estate planning is complicated, as each family's situation is unique. Complicated state and federal laws can make it difficult to develop an effective estate plan that accounts for all of the family's needs. Additionally, tax implications can have a significant financial impact on family homes and estate plans. For these reasons, many of those in the estate planning process can benefit from seeking legal guidance from a veteran estate planning attorney. Contact the Law Office of Aubrey Carew Sizer PLLC at (571) 403-2619 to learn more about your family's options regarding estate planning and the family home.
