The value of your real property does indeed count when the IRS is assessing the value of your estate. This is why many people find themselves subject to the estate tax even if they do not necessarily consider themselves to be extraordinarily wealthy in terms of cash.
One way that you can reduce the taxable value of your home while you are arranging for it to be transferred to an heir or heirs in the future is to place it into a qualified personal residence trust.
To learn about these trusts in detail you will want to sit down and discuss things with an experienced estate planning attorney, but we will provide you with a brief overview here.
You place the home into the trust and name a beneficiary who will become the owner of the home when the term expires. This takes your home out of your estate, but you are giving a taxable gift.
When you are drawing up the terms of the trust you set forth a term during which you will continue to reside in the home as usual.
Because you are staying in the home for a period of time the taxable value of the gift is not equal to the fair market value of the home. Its monetary value to the beneficiary is not the same as it would be if you gave the gift immediately.
As a result the IRS valuates the home for tax purposes based on its actuarial value, and this is going to be significantly less than its true value on the open market.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.