(Photo Details: Sweet House. According to the Wall Street Journal today, "More than half of all assets owned by 50 % of families come from real estate."))

Although I was a tax specialist for many years, this real estate planning technique was a shock to me when I read it yesterday in Wall Street Journal (You may have to be a subscriber to see this link.) For those of you who were not tax accountants, here are some background before I got to the punchline:

Real estate tax

Most people will not pay real estate tax when they die. Real estate receives an exemption from the tax that is adjusted to inflation every year. For 2019, for example, if you are death with $ 11.4 million or less in assets, you will not condemn any real estate tax.

When you are married, and inherit your wife’s drug when he dies, this exemption is not yet relevant, because you can inherit an unlimited amount of your wife and not pay the real estate tax.

Then, when the second pair dies, (assuming the exemption numbers for 2019), you do not get an exemption only $ 11.4 million, you can get twice that – $ 22.8. You can get your own exemption and also the exemption that you traveled with the origins of your deceased wife that you inherited in advance.

This means that most of us do not pay real estate taxes.

Climb

But wait, there is more. When you die, the tax basis for your assets “ascended” to the fair market value of those assets on the day you died. So, if you bought Apple Stock for a billion years for $ 50 per share, and worth $ 250 a day you die, your heirs can sell it for $ 250 and do not pay for capital gains. If you have sold it while you are alive, you owe a tax on $ 200 of profit. So your heirs inherit more if you never sell it because no one must pay the tax on this gain. The taxable gain mainly disappears.

All this I already knew.

Now the puncline

What did not happen to me is (from the Wall Street Journal, if you could not read connection):

This means that the optimal tax strategy for the very wealthy, seized and promoted by the wealth planning industry is clear: the assets contract until death, borrowing against them due to living expenses and barely paid income taxes.

When your children inherit these assets, they can sell, do not pay any tax, and use revenues to pay your loans. Remember that these loans were just your living expenses, which will go from your property anyway because you need this money to live. The only difference is the benefit (and of course the absence of tax gains. Not to mention that the assets you did not sell are still estimated.

The traditional trend in retirement

Who leads me to your home. Typical pension planning technology is to sell the large house you raised to your children and go to buy a smaller and less expensive house, and perhaps even in low -cost language. Then you can use all this wonderful home stocks that you collected to finance your golden years.

But there is a cost of this plan, and if you live in a state where the housing is very appreciated throughout those years, it may cost you a little.

If you are married and you are selling your home, you are likely to qualify to exclude up to $ 500,000 of profit in this sale. So if this is the gains as much as you have, it may make a plan to reduce its size as announced.

But if your gains are much more than exemption, it is worth running the numbers to see if it is cheaper to be cheaper in the reverse mortgage mode. The house continues to be appreciated, you and your heirs escape from the entire capital profit tax, and I managed to get money to pay the expenses of living while you were alive. Like, it seems, the wealthy and celebrities do with their property.

Of course, if you really want to live elsewhere, do nothing for mere tax reasons. The last time I did it, It didn’t work well.

If this is how our tax laws should work, this goes beyond this blog post. But you can weigh that in 2020.

Can’t be tracked the postpartum schedule? Subscribe – it’s free!

Related functions:

Bennie Al -Hakim and fools (or stupid tax tricks)

Two stupid financial decisions I made

Three methods can have a pension financing

(Photo Details: Sweet House. According to the Wall Street Journal today, "More than half of all assets owned by 50 % of families come from real estate."))

Although I was a tax specialist for many years, this real estate planning technique was a shock to me when I read it yesterday in Wall Street Journal (You may have to be a subscriber to see this link.) For those of you who were not tax accountants, here are some background before I got to the punchline:

Real estate tax

Most people will not pay real estate tax when they die. Real estate receives an exemption from the tax that is adjusted to inflation every year. For 2019, for example, if you are death with $ 11.4 million or less in assets, you will not condemn any real estate tax.

When you are married, and inherit your wife’s drug when he dies, this exemption is not yet relevant, because you can inherit an unlimited amount of your wife and not pay the real estate tax.

Then, when the second pair dies, (assuming the exemption numbers for 2019), you do not get an exemption only $ 11.4 million, you can get twice that – $ 22.8. You can get your own exemption and also the exemption that you traveled with the origins of your deceased wife that you inherited in advance.

This means that most of us do not pay real estate taxes.

Climb

But wait, there is more. When you die, the tax basis for your assets “ascended” to the fair market value of those assets on the day you died. So, if you bought Apple Stock for a billion years for $ 50 per share, and worth $ 250 a day you die, your heirs can sell it for $ 250 and do not pay for capital gains. If you have sold it while you are alive, you owe a tax on $ 200 of profit. So your heirs inherit more if you never sell it because no one must pay the tax on this gain. The taxable gain mainly disappears.

All this I already knew.

Now the puncline

What did not happen to me is (from the Wall Street Journal, if you could not read connection):

This means that the optimal tax strategy for the very wealthy, seized and promoted by the wealth planning industry is clear: the assets contract until death, borrowing against them due to living expenses and barely paid income taxes.

When your children inherit these assets, they can sell, do not pay any tax, and use revenues to pay your loans. Remember that these loans were just your living expenses, which will go from your property anyway because you need this money to live. The only difference is the benefit (and of course the absence of tax gains. Not to mention that the assets you did not sell are still estimated.

The traditional trend in retirement

Who leads me to your home. Typical pension planning technology is to sell the large house you raised to your children and go to buy a smaller and less expensive house, and perhaps even in low -cost language. Then you can use all this wonderful home stocks that you collected to finance your golden years.

But there is a cost of this plan, and if you live in a state where the housing is very appreciated throughout those years, it may cost you a little.

If you are married and you are selling your home, you are likely to qualify to exclude up to $ 500,000 of profit in this sale. So if this is the gains as much as you have, it may make a plan to reduce its size as announced.

But if your gains are much more than exemption, it is worth running the numbers to see if it is cheaper to be cheaper in the reverse mortgage mode. The house continues to be appreciated, you and your heirs escape from the entire capital profit tax, and I managed to get money to pay the expenses of living while you were alive. Like, it seems, the wealthy and celebrities do with their property.

Of course, if you really want to live elsewhere, do nothing for mere tax reasons. The last time I did it, It didn’t work well.

If this is how our tax laws should work, this goes beyond this blog post. But you can weigh that in 2020.

Can’t be tracked the postpartum schedule? Subscribe – it’s free!

Related functions:

Bennie Al -Hakim and fools (or stupid tax tricks)

Two stupid financial decisions I made

Three methods can have a pension financing