Tag Archives: Life Estate

Cash Now or Inherit Later?

30 Apr

Metro® Boston, Publication Date: March 9, 2011

By Attorney George Warshaw 

What would you do? 

An elderly parent owns several rental properties. He offers to sell these investments and give you your inheritance now. You could, of course, decline and simply inherit it several years from now. 

Most people, I suspect, would take the cash now – but they might be short changing themselves. Here’s why. 

Let’s say your parent sells an investment property and has to pay a capital gains tax of $100,000 on the profits realized. If you were to inherit the property instead, you might have saved the $100,000. 

When a person inherits real estate, he or she acquires it at its fair market value. Sell it at the same value and you haven’t made a profit in the eyes of the IRS. For example, if a property is worth a million when you inherit it and then you sell it at the same amount, you haven’t made a profit. You make a profit only if you sell it for more.

Be careful though: if your parent’s estate is large enough to be subject to a federal or state estate tax, it might be better to take the money today. Consult a tax accountant or attorney for your situation. © 2011 George Warshaw.

The foregoing is not intended as legal advice. Consult an attorney to see how or if the foregoing applies to you.

Attorney George Warshaw represents buyers and sellers of homes, condos and investment properties, prepares wills and trusts for inheriting real estate, and trusts that protect your children and pets. George welcomes new clients and questions at  george.warshaw@warshawlaw.com.

Should You Gift Real Estate?

30 Apr

Metro® Boston, Publication Date: January 12, 2011 

 By Attorney George Warshaw 

Is it better to receive a gift of real estate or inherit it later? Tax wise, a gift isn’t always the best choice for the recipient. 

When a person dies one’s real estate has to be valued. Let’s say the present market value of the house is $500,000, but you, the homeowner, only paid $100,000.

Give it to your children while you are alive and they later sell it for $500,000: they may have to pay a capital gains tax on $400,000 of profit. But if they inherit and sell it for $500,000, no tax or a lesser tax may be due.

 Here’s why:

 A person who receives a gift steps into the shoes of the giver. The recipient acquires the property at the same cost or tax basis as the person who gave it, i.e. $100,000. Sell it for $500,000 and you’ve made a profit. If you inherit property, you instead acquire it at its fair market value, i.e., the same as if you paid $500,000 for it. Sell it for $500,000 and you’ve sold it for the same amount that you acquired it.

 The above information may not apply you. Always consult your tax advisor or attorney before gifting real estate. There are numerous opportunities available to owners of real estate. © 2011 George Warshaw.

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Caution. The foregoing is not intended as legal advice. Laws, and court decisions interpreting them, change frequently. This post is not updated. If you have a legal question, only an actual consultation with an attorney who has an opportunity to review all the facts can provide an answer that applies to your situation.

Attorney George Warshaw represents buyers and sellers of homes, condos and investment properties and prepares wills and trusts for inheriting real estate. George welcomes new clients and questions at  george.warshaw@warshawlaw.com.

Gifting Your Home to Your Children

30 Apr

 Metro® Boston, Publication Date: January 5, 2011

 By Attorney George Warshaw

 It’s not unusual for parents to gift their home to their children and expect to live in it afterwards; but we’ve all heard stories – all too real – about how someone’s parents were later forced to move.

How can something so simple go so badly?

Suppose you (the parent) deed your home to your son as a gift. He gets a mortgage but can’t pay it; or, your son’s creditors place a lien against all real estate standing in his name; or, your son gets divorced and now your home is one of his assets before a probate judge.

How can you protect your home? A trust is perhaps the best method, but a life estate may work almost as well.

It works like this: In the deed to your son or daughter you, the parent, simply reserve the right to live in the house the rest of your life (i.e. called a “life estate”). While your son’s creditors may still acquire a lien, the lien is subject to your right to live in the house forever. If your son wants a mortgage, your permission is needed – and, if you take my advice – be smart, don’t give it! If you do give it, you will likely be evicted in the event of a foreclosure. © 2011 George Warshaw.

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Caution. The foregoing is not intended as legal advice. Laws, and court decisions interpreting them, change frequently. This post is not updated. If you have a legal question, only an actual consultation with an attorney who has an opportunity to review all the facts can provide an answer that applies to your situation.

Attorney George Warshaw represents buyers and sellers of homes, condos and investment properties and prepares wills and trusts for inheriting real estate. George welcomes new clients and questions at  george.warshaw@warshawlaw.com.