THINKING ABOUT HOW you'll pass your beach house or mountain cabin along to future generations? Several factors will probably play a major role in what you decide. "You'll want to consider things like how many family members might end up with shares in it, their financial situations and yours, how long you wish to maintain ownership, and what the potential impact on your taxes might be," says Jeralyn Seiling, a director in Merrill Lynch's Wealth Structuring Group.
"Consider things like how many family members might end up with shares in it, their financial situations and yours, and what the potential impact on your taxes might be."
Jeralyn Seiling Director in Merrill Lynch's Wealth Structuring Group
Your financial advisor, together with your attorney and tax professional, can help you find an approach that serves your needs. Here are three possibilities to consider.
An outright gift.
Often the easiest and most straightforward way to go, this option requires the least paperwork. While you will not get a tax deduction if you pass the house along to family (you can receive the deduction only if you're making a qualified charitable donation), you could potentially see tax benefits on a state level. While several states and the District of Columbia have estate and/or inheritance taxes, only Connecticut has a gift tax.
A qualified personal residence trust (QPRT)
This can be an attractive estate planning device, potentially saving on estate and gift taxes. Here's how it works: When you transfer the house's title to a QPRT, you retain the right to live in the home for a specific length of time. During that time, you are responsible for all expenses, including real estate taxes and repairs. Once the specified period ends, the house is transferred to your children, with no estate tax.
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A family limited liability company (LLC)
With this option, you can pass ownership of the home to an LLC, whose managers—in this case, you—can transfer shares to individual family members. Those who are part of the LLC then put together a detailed operating agreement specifying who has access to the home and when, as well as who's responsible for taxes, upkeep and other expenses. An LLC can offer tax advantages and help you maintain control over the property even after you give shares to your children.
3 Questions to Ask Your Advisor
- If I want my house to be shared among my heirs, what is the most effective way to transfer ownership?
- Would setting up a qualified personal residence trust make sense for me?
- What are the tax advantages of transferring my vacation residence to an LLC to be shared among family members?
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Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.
The investments or strategies presented do not take into account the investment objectives or financial needs of particular investors. It is important that you consider this information in the context of your personal risk tolerance and investment goals. Always consult with your independent attorney, tax advisor, investment manager, and insurance agent for final recommendations and before changing or implementing any financial, tax, or estate planning strategy.