Tuesday, April 9, 2019
The Tax Cuts and Jobs Act allows wealthy individuals to transfer up to $11.4 million at the time of their death without fear of being hit by estate taxes. But this exclusion amount only lasts until 2025 unless it becomes permanent.
When a person transfers property during his or her lifetime, the recipients must account for it according to the original price paid, known as the basis, if they sell it after receiving it. For those that want to take advantage of the higher estate tax exclusion, a good rule of thumb is to gift property that they believe the recipient will retain instead of selling. Family vacation homes usually stay in the family for years and possibly even generations.
But a client should make sure that their children or other family members want the property for their own personal use before gifting it to them. If they say that they do, the good news is that passing the home on during your lifetime doesn’t mean relinquishing your use or even control of it. Instead of transferring it outright, you can transfer the vacation property into a trust or into a limited liability corporation. A common structure used for vacation homes is called a qualified personal residence trust, or QPRT, to retain control of using the residence for the rest of the client's lifetime, says Scott Cripps, head of estate planning for Morgan Stanley’sFamily Office Resources group. Upon the grantor's death, the property would transfer to the designated beneficiaries at death.
See Amy Schultz, What to Know When Gifting the Family Vacation Home, Barron's, March 31, 2019.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.) for bringing this article to my attention.