Life estates may be useful for your family.
When it comes to estate planning, there are numerous tools at your disposal.
Some, like a last will and testament, are essential.
Others are optional.
These optional tools are dependent upon both goals and circumstances.
A recent nj.com asks “How does a life estate work to transfer a home to a child?”
A life estate essential allows a homeowner like you to hold rights to your home while transferring ownership to your child.
What rights do you retain, as a result?
You would have the right to reside in the property.
Your child cannot evict you.
Your child has no right to live in the property.
Sure, you can allow the child to live with you, but you are not obligated to do so.
All that noted, your rights do come with responsibilities.
What are they?
You must pay the regular maintenance, repairs, and property taxes.
Can you move out?
If you rent the home rather than sell, the rental income will be yours.
What if you sell the house before you die?
You will receive some of the proceeds and so will your child.
Your portion will be free from income taxation.
Your child will owe taxes on any capital gains.
What happens if you die?
The life estate will end.
All rights and responsibilities now belong to your child.
In addition, the property will receive the step-up in basis.
Consequently, if your child sells the property, the capital gain or loss is calculated based on the the value at the date of your death and the date of sale.
If you have owned the home for many years, this could be a significant tax benefit.
There are a number of valid ways to pass along a home.
Discuss your options with an experienced estate planning attorney to determine what will be the best choice for your situation.
Reference: nj.com (July 12, 2019) “How does a life estate work to transfer a home to a child?”