Is Deeding Property Protection Against Estate Tax?

Sivia Law

Todd Sivia
Managing Partner, Sivia Business & Legal Services

Estate Planning is a topic no one wants to think about. But, unfortunately, estate planning requires a lot of thinking and careful preparation. Often, a seemingly harmless act has catastrophic, rippling effects on other family members. For example, aging parents are looking for ways to protect their children’s inheritance from probate or estate taxes. Unfortunately, all to often parents are deeding their homes to their children, thinking it is a less expensive and easy way to transfer ownership. However, there are several reasons to avoid this alternative.

First, let me define what it means to “deed your residence.” Simply put, it means transferring the title to your children’s name without a formal sale. If the parents are ready to down size to an assisted living facility or prefer to remain in the home but are concerned about future estate taxes, deeding property appears ideal.

But, if the transfer is completed within five years before the parents require nursing home care or government benefits, it can cause a delay in Medicaid eligibility.

Additionally, if the property is in Illinois, there are property tax exemptions for owner-occupied property and senior-occupied property. So unless the children are moving in with the parents, or the children are over 65, the property tax bill will go up.

And what happens if the property is deeded to an adult child, and that child subsequently gets divorced? The ex-spouse is entitled to half of the property. If the parents’ intention was to stay in the home, this divorce could significantly alter those plans.

Finally, if aging individuals sells their property, its exempt from capital gains tax. However, if the property is deeded to the children and they sell it, the children may be looking a substantial capital gains tax liability.

No, estate planning isn’t fun. It can be stressful. But, mostly, estate planning needs to be strategic.

If you have questions regarding a contract for deed, or any other estate planning options, you can contact me at 618-659-4499 or e-mail me at info@sivialaw.com. You can also visit our website and learn more about our estate planning strategies at www.sivialaw.com/estateplanning.

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Three Myths About Wills & Guns

Sivia Law

Todd Sivia
Managing Partner, Sivia Business & Legal Services

I have written estate plans for a lot of gun owners and I find that they are surprised to learn that transferring a gun is a lot different than willing other forms of personal property. Therefore, I feel it is important to address a few of the myths surrounding the passing down of firearms.

Myth #1 – I do not need to include my guns in my Will. My family knows my wishes.

While your family may know what you want done with your guns, it isn’t always that simple. If you will a firearm to anyone without a valid FOID card (in Illinois), and that person takes possession, then they have committed a felony.

Or, if that person lives in another state and takes the firearms across state lines, it is now a federal felony—punishable with 5 years in prison and a $100,000 fine. That is probably not the “gift” you intended.

But these scenarios are easily preventable with proper planning.

Myth #2 – My guns are noted in my Will. That is enough.

Unfortunately, every item listed in your Will goes through the probate process. Probate is a public hearing where a judge determines who gets the items in your estate.

So not only will everyone know which guns you own and how much your collection is worth, but your beneficiaries will have to pay the transfer tax per firearm–and possibly estate taxes on top of that. Did I mention the lawyer fees?

Myth #3 – I created a Revocable Living Trust online to protect my guns from the probate process.

While a RLT certainly is a helpful estate planning tool, it is not, however, a good place to put your gun collection.

Why? The fact is that an online RLT can be downright dangerous, since they do not contain firearms-specific language. Some boilerplate RLTs have even proved invalid in court. So RLT downloaded from the internet or purchased from a gun shop might seem like a economical option, but it can cost your family more money in the long run.

The most effective method for protection is a gun trust. A gun trust is a special-purpose trust written to hold ONLY your firearm collection. You are trustee and beneficiary. You can appoint successor trustees, lifetime and remainder beneficiaries, and the trust can be amended or revoked at any time.

A gun trust ensures your guns will be handled lawfully after your death or incapacity, allows easier application and ownership of NFA items, permits ownership transfers without the $200 tax, and avoids probate and guardianship.

Most importantly, it protects your firearms from being declared illegal in the future.

Gun collecting isn’t like other hobbies. You’re not stashing away beanie babies in the attic. You’ve invested considerable amount of time and money into your guns. If you are interested in protecting your investment, contact me at 618-659-4499 or email me at info@sivialaw.com. Or, visit our website at www.sivialaw.com/estateplanning.