February 1, 2016

If you’re a parent and you have used the New Year to do some estate planning for the year ahead, it’s important to get the perspective of an attorney while you do it. This is because many parents have good intentions, but actually set up a ticking time bomb for their children if the proper tax planning hasn’t coincided with setting up the future of your estate. 

Taxes can be hefty when an asset is sold, and the amount of the tax depends a great deal of how the asset became the property of the heir.

One such example has to do with real estate: well-meaning parents might pass on a residence deed to their children to avoid probate or to protect it from impacting their ability to qualify for government long-term care services. The child who receives it, however, would not have paid the parents the fair market value for the property. This is why the house would be seen as a gift, and one that potentially necessitates a gift tax return. If a child inherits the home and later sells it, the difference between what the parents paid for it and the price it sold for could be taxed as income for the child.

Any major assets like this should be considered carefully, whether you intend to pass them on during your lifetime or after. The advice of an estate planning attorney can prove especially fruitful during this time.