The timing of creating an estate plan doesn't necessarily coincide with a certain age. As pointed out in a recent Forbes article, titled "Passing Down Your Home? 3 Steps To Creating A Successful Estate Plan," the timing of creating an estate plan has more to do with the different stages of your life. Whatever the reason for developing an estate plan, once you are ready to start planning the Forbes article recommends these three steps.
Step 1: Communication.When parents and grandparents leave important details to chance, the results can be catastrophic. Estate planning can be an emotional process—especially when children or grandchildren grew up in the home. Speaking with all of them and maintaining close contact with financial advisors can help families remain in control and diffuse any potential tension. An estate planning attorney can also help families manage the many moving parts of real estate inheritance. As the article advises, find "an experienced, high-end estate attorney to do this for you."
Step 2: Your Tax Situation.When passing down your home tax issues can be a real hassle, especially for high net worth individuals (estates valued at $3 to $11 million). There are different planning and tax strategies for these individuals, to include setting up trusts called Qualified Personal Residence Trusts (QPRTs) to discount the value of their estates. QPRTs follow IRS rate schedules that allow families to discount the value of their properties based on the amount of time they have lived in them. QPRTs also allow families to transfer homes to inheritors as a gift, which results in a lower tax rate. Estate planning attorneys will determine the discount that can be applied to value of your home. The longer you commit to living in a house, the bigger the discount can be.
Step 3: Plan a Maintenance Fund.The Forbes article warns that passing a home down to your children is about more than just transferring the property itself—there is maintenance and up-keep. Parents need to develop a plan to help their children and future generations finance repairs and other unforeseen maintenance expenses.
Passing down your home is a delicate process that impacts your entire family. Your family home is one of your most valuable assets and a source of treasured family memories. With diligent planning and partnerships with a qualified estate planning attorney, you can help make sure that your home remains well-maintained and in your family for years to come.
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Reference: Forbes (June 30, 2014) "Passing Down Your Home? 3 Steps To Creating A Successful Estate Plan"