When any California resident begins to consider estate planning, there are many factor to think about. For a long time, protecting an estate from estate taxes has been a major priority for many Californians. As the federal government has changed the exclusion levels over the years, people have adjusted their estate planning accordingly. Many people put money or property in trusts to lower the worth of estate so their heirs wouldn't get taxed.
For many people, their home is their largest and most expensive possession. Unsurprisingly, when the tax exclusion levels were low, many people utilized qualified personal residence trusts. These trusts allowed an individual or family to bring down the value of their estate by passing a home to their heirs before they died. With their home no longer included in their estate, their heirs wouldn't have to pay estate taxes. With recent changes in estate tax laws, however, some say this type of protection may not be necessary for average homeowners.
Today, the estate tax exclusion level is $5.25 million for an individual and $10 million for a couple. As long as your estate is worth less than that, it will not be subjected to estate taxes. Since many people's assets are not worth that much money, a qualified personal residence trust may not be necessary.
In fact, it can actually make things more difficult for heirs later on. Because heirs to a home have to pay capital gains taxes, it usually makes more sense to keep the home in the estate rather than put it into a trust.
Ultimately, how you handle your home in your estate planning depends on your unique situation. If the value of your estate is close to the estate tax exclusion level, it may make sense to utilize a trust. Either way, it is often helpful to work with an attorney who can ensure that your estate plan will serve your heirs well.
Source: The Wall Street Journal, "Strategy to Counter Estate Tax LEss Appealing," Arden Dale, July 10, 2013