Right now, the estate tax exemption is higher than it ever has been. And because of the elevation in housing prices recently, the capital gains tax has become a serious issue for many people. Working with a will attorney during the estate planning process may be able to help you save on taxes while you are still living.
The first thing your will attorney will tell you when you meet with them about using this approach is that using your estate plan to save on taxes is not the right solution for everyone. You will need to have a trustworthy relative who can serve as an additional trust beneficiary.
Known as upstream planning, saving on taxes with your estate plan involves transferring certain appreciated assets to a relative with a shorter life expectancy. Because that person is expected to die sooner, the step-up basis is triggered sooner. When that person dies, you will receive the step-up basis on the asset, saving income taxes on depreciation while also avoiding extremely high capital gains taxes when you go to sell that property.
While you may not be too worried about paying for estate taxes now, nobody wants to pay too much in capital gains taxes or income taxes later on. To use this method, your will attorney will need to establish general power of appointment for your older relative. Providing this power will include the value of property in their estate, ensuring that you receive the income tax savings later on.
For this kind of transaction, properly planning with the help of a will attorney is a must. To learn more, reach out to our office today.