With more than 10,000 baby boomers turning 65 every day, estate planners are working overtime to prepare for the upcoming wealth transfer to their children. Sources aren’t exactly sure how much that will be—somewhere between $15-$68 trillion dollars—but either way, it’s a lot. While the majority of those assets are held within retirement accounts, real estate also accounts for a significant portion of these assets.
If you’re one of said baby boomers and have found yourself without a plan on how exactly you are going to transfer your assets and property to your heirs, here’s a good place to start.
Step 1: Have an open dialogue
Inheriting real tangible assets like property comes with challenges. If the family dynamics are rocky or if the will or title is unclear, it could make an already difficult task even more complex. By discussing your plan with your heirs, you can understand their own wishes and goals, avoid any misunderstandings later and be sure that your estate will transfer smoothly.
Step 2: Ensure your title is set up correctly
The last thing you want to do is subject your real estate, or any of your assets for that matter, to the costly fees and delays that come with probate court. So it might behoove you to reevaluate your current vesting, especially if a different option can save you and your loved ones paperwork, time, headaches and heartbreak. In California there are six different ways to hold title, but a living trust is the only one that maintains the greatest control and privacy—while also avoiding probate court.
Startling Statistic: Only about 1/2 of single family homes in Del Mar are held in a trust!
Step 3: Take advantage of tax breaks
Starting in 2020, the lifetime gift tax exemption is $11,580,000 per person and $23,160,000 for a married couple. Yep, you read that right! That means you can give up to $11.58 mil in gifts during your lifetime or at your death—including real estate—generally without having to pay “death” taxes on it. Gift planning with real estate can be a strategic way to take advantage of that high lifetime exemption without decreasing your liquidity.
Another valuable tax law in California states that the transfer of a primary residence from parent to child can be fully excluded from property tax reassessment. What does this mean? Typically when a change of ownership takes place, the property is reassessed to its current market value. With this law, children can avoid that dramatic increase in property taxes. But with an upcoming election in November, these laws could change, so you may consider altering your plan to take advantage of them now.
Step 4: Talk about your options with an estate planner
If you aren’t quite ready to transfer over your real estate now, there are several options when passing real estate and other assets to the next generation. We are not attorneys nor are we experts in estate planning, but we know several who are and are happy to make an introduction.
Regardless of how you choose to set up your estate, it all boils down to getting organized and instituting a strategic plan that will protect yourself, your assets and your heirs.
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