Your Home and Your Estate Plan

Your Home and Your Estate Plan
Your home is a significant investment. For many, it represents the single largest asset in your estate. The purchase or sale of a home can have a significant impact on your estate plan. Every homeowner should understand the following facts about Your Home and Your Estate Plan.

Estate Taxes

  • While estate taxes will not concern most people currently, the big question is how will estate taxes affect you in the future. The new estate tax amounts revert to the old amounts (approximately $5,600,000.00 now, indexed for inflation for each succeeding year) as of January 1, 2026.
  • The fair market value of your home, less any mortgage against it, is included in your final estate for the purposes of determining whether you owe estate taxes.
  • That value, along with the value of all of your other assets — anything that you own or control at the time of your death (including life insurance benefits and jointly owned property/accounts) — is added together.
  • If the sum exceeds your applicable exclusion (up to $11.18 million for an individual in 2018, potentially $22.36 million if you are a surviving spouse), federal estate taxes are levied against the excess.
  • Federal estate taxes are 18-40 percent on the value over the applicable exclusion, but, with the unified credit, any estate that does pay Federal estate taxes pays it at the 40%rate.
  • They are also due from your estate, in cash, within nine months of death.
    New York State’s death taxes are paid after an estate exceeds $5,250,000.00 (the exclusion amount in 2018) in total value.
  • If a New York resident’s estate is valued at more than $5,512,500.00, then taxes are paid on the entire estate, not just the value above the exclusion amount.
  • In NY, before January 1, 2019, there is a three year look-back for gifts made. That means, the value of any gifts made up to three years before a death are added back into the value of the estate. From January 1, 2019, there is no longer a look-back and recapture for gifts.
  • Proper legal planning, however, can help reduce or eliminate an estate tax burden.

Tenancy by the Entirety and Joint Tenancy
Tenancy by the Entirety is a legal term for the way that many married couples hold title to their real estate assets, including co-ops. When you own real estate as “Tenants by the Entirety” with your spouse, you each own that property 100%. Joint Tenancy is similar, but usually with someone other than a spouse. Tenancy by the Entirety and Joint Tenancy have advantages, but you should be aware there are possible pitfalls as well, including:

  • Tenancy by the Entirety and Joint Tenancy override any provisions in a Will. Sometimes, especially in second marriages, one spouse intends for real estate to pass to his or her own children at death. This may even be written in the Will. However, when you title real estate as Tenants by the Entirety or Joints Tenants with someone, they will automatically own 100% of the property when you die, regardless of any provisions in your Will. This often comes as a shock to the “disinherited” family members.
  • Tenancy by the Entirety and Joint Tenancy negate estate tax planning. With proper planning a married couple can protect up to $22.36 million (2018) of federal estate value from federal estate taxes (New York State does not provide for this combined exclusion.) Tenancy by the Entirety and Joint Tenancy negate this type of planning and could effectively reduce a couple’s protection from 22.36 million to $11.18 million –which represents a huge tax mistake!

Probate Fees
If your real estate is subject to probate at your death, the fees for that proceeding will be determined by the full fair market value of your home. There is no reduction for a mortgage or debt against your home when calculating probate fees.

Wills and Trusts
Now that you own a home, you should, at the very least, have a Will to specify whom you would prefer to receive the home in the event of your death. But realize that a Will takes your estate through the probate process. If you prefer to keep your personal affairs private, and avoid the unnecessary expense and time delays of probate, you may want to consider a Revocable Living Trust. And if you own real estate in a state other than New York or intend to disinherit a child, you should definitely consider a Revocable Living Trust.