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There are many different estate planning tactics that are beneficial in the right circumstances. If you’re married, one of the most common strategies is joint ownership of some kinds of assets. This helps in the case when one spouse dies, so the surviving spouse does not have to pay estate taxes or go through probate (for individuals that have a will).
Gifts and Estate Tax Exclusion Limits
Planning ahead is critical if you want to preserve as much of your estate for your family as is legally possible. You can start by gifting cash to heirs tax-free; the annual gift exclusion amount for 2019 is $15,000, and if you’re married, both you and your spouse may give up to that amount.
The estate tax exclusion limits were recently raised to $11.4 million per individual and $22.8 million for a married couple. This means that if your estate is worth $22.8 million or less, you are excluded from federal estate taxes when your estate is handed to your heirs. It is possible to gift any funds over and above this amount to your heirs, and you may even set up a trust for the surviving spouse to maintain control of, especially if the beneficiaries are not ready to receive their gift.
Jointly Owned Real Estate
Having a property held by both spouses is advantageous at the time that one spouse dies. If the property has significantly appreciated in value, only one-half of the current fair market value will be taxable while the other half will remain at the original tax level at the time of purchase. Compare this to if the property were held in the name of the spouse that passes – the entire current fair market value would be taxable at long-term capital gains tax rates, which is the same as income tax. This may be advantageous if the surviving spouse does not wish to sell the property.
If only one spouse owns the property and the surviving spouse would like to sell after their passing, the tax basis would increase on the entire property and property sale could go through without paying capital gains taxes. This rule is also applicable to other investments like stocks, mutual funds, businesses, and other assets.
Ensure Your Estate Benefits Your Heirs
Often, the jointly owned property does not give many benefits until both spouses own at least $1 million worth of property. Avoiding probate is one advantage of utilizing joint ownership, but this advantage goes away with the death of the second spouse, leaving your heirs to deal with the costs and that time-consuming process. This becomes irrelevant, however, if you set up a living trust. It is important to speak with an experienced Folsom estate planning lawyer to understand the most current laws and ensure your estate provides your family with the maximum benefits possible.
Thanks to the Yee Law Group for their insight into estate planning and jointly owned property.