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The basics of real estate planning

  Happy elderly couple sitting and planning the nest with young lawyer

If you have a particularly large property, the need for some type of property planning can be obvious.

But it can also be a necessary step even if you are not "rich".

Since so many people have accumulated significant property shares and large pension balance sheets, the need for property planning also increases among the middle class.

Read this guide carefully if you do not think you need housing planning.

When you're done you can be convinced of something else. Real estate planning is really for everyone.

What is a property?

A property is the assets you leave behind for your heirs after you have died.

And while we normally think of properties related to the rich, almost

Another way, almost everyone will have a property.

The various types of assets are:

  • Cash
  • Bank accounts
  • Investment account
  • Income from life insurance
  • Some annuities
  • Your primary residence
  • All other properties you own
  • Business interests
  • Intellectual property rights
  • Personal property
  • Deferred compensation and stock options
  • Pension accounts including pensions, 401
    (k) plans and individual pension accounts
  • Money for you (notes, mortgages, etc.) [19659013] Cars, Recreational Vehicles and Equipment

More extensively, your property includes any assets that can be sold or liquidated for cash.

Furthermore, the property is reduced by any outstanding debts at the time of your death.

This may include bank loans, mortgage loans, personal loans and open tax liabilities.

Many people are not aware of how big their properties are. This is often due to the fact that they are not fully aware of the full value of their financial assets, the capital of any immovable property they own or the many non-financial assets legally involved in a property.

Why do you need Real Estate Planning – even if you are not rich

 Good elderly couple are planning and living with a young lawyer When the value of all the assets listed above is correctly determined and many will be in need of some form of housing planning.

You must to some extent determine the allocation of assets to your heirs.

But in some situations, you may also need to provide direct care to dependent heirs, protecting your property from potential heirs that you specifically want to exclude or arrange for the transfer of ownership to a business.

Property planning may also be necessary if you need to make specific provisions for one or more heirs.

For example, if you have special needs children who will need financial support for life, a real estate plan can help you arrange it.

You can also decide that you want a large portion of your assets for some charities. It can also be spelled out in your living plan.

If you have a particularly large property, you may also need to use property planning to minimize property tax.

This is a topic we are discussing in more detail in the next section.


One of the biggest reasons for the accommodation's planning is to avoid probate. Probat is a legal process that can happen after your death.

It may happen at any time there is a question regarding the assets of your property. It may include proper valuation of the property portfolio, payment of certain liabilities and taxes, and allocation of assets.

Probat can take place even if you have a will. The will can list specific assets and dividends to your heirs.

But if there are any questions – or challenges to the formula of distribution – your property may end up in probate.

The main disadvantages of probate are: [[19659012] Delays the distribution of your property, sometimes for several years, and

  • Reduces your property value by paying legal fees.
  • It is best to avoid, and the best way to do that is through housing planning.

    Business Succession

    If you are a business owner, real estate planning is absolutely necessary.

    You may need to set up a business plan to arrange a smooth transfer of ownership of the operation to your

    This is a specialized real estate planning area.

    Property Tax Preparation

    For most, property tax will not be a problem, at least not at federal level. That's because the federal tax threshold on real estate is $ 11.4 million for 2019.

    In addition to the property limit, a graduate rate of 18% applies to 40%, with 40% to $ 1 million in surplus (or in other words to $ 12.4 million property – the first $ 11.4 million is untaxed).

    Relatively speaking, only a small proportion of the population will be affected by the federal real estate tax, as there are relatively few values ​​of at least $ 11.4 million. 19659003] Another important point about property tax: they do not apply to assets transferred from one spouse to another at the death of a death.

    They apply only to properties handed over to children and other recipients.

    But the more pressing issue can be at state level.

    While most states bind their thresholds for property tax to federal border, several taxes carry much smaller real estate.

    Examples include (for 2019):

    • Connecticut, $ 3.6 million
    • District of Columbia, $ 5,681,760
    • Hawaii, $ 5.49 million
    • Illinois, $ 4 million
    • Maine, $ 5.7 million
    • Maryland, $ 5 million
    • Massachusetts, $ 1 million
    • Minnesota $ 2.7 million
    • New York, $ 5.74 million
    • Oregon, $ 1 million
    • Rhode Island, $ 1,561,719
    • Vermont, $ 2.75 million
    • Washington. $ 2 193,000

    A total of 12 states, plus the District of Columbia, impose a much lower property tax than the IRS.

    As you can see, Massachusetts and Oregon put up real estate taxes as low as $ 1 million. 19659003] It is not a small problem considering that 11.5 million millionaires are households in the United States.

    Moral of the story: while federal real estate taxes may not be a problem for you, there is more than a slight chance that you will have a state tax debt, at least if you live in one of the 12 states with a lower real estate limit.

    A Will Against a Trust

    A will is the most common document used to manage a property. It is a standard document describing specific provisions after your death.

    This may include not only the listing of your assets and the heirs to whom they will be distributed, but it may also establish guardianship over all dependent children, as well as other regulations.

    Another important function of a will is to appoint an executor. This is a person, usually a recipient named in the will, who will manage the management, liquidation and distribution of your goods at your death. You can appoint more than one executor.

    One of the limitations of a will is the potential for probate. For example, if you are trying to remedy a child or spouse, it may be subject to a legal challenge.

    There may also be problems if you have divorced and you have children from multiple marriages.

    For greater legal protection, trust is often established. It is a legal arrangement where you give authority to another party to manage your property.

    The biggest advantage is that the estate will not be subject to probat. The assets are transferred directly to the named beneficiaries, according to the distribution formula stated in the trust.

    Trust Variations

    In fact, trust becomes a legal entity for itself. It can be financed while still living, called living confidence.

    If established as a revocable trust you can fund the trust but retain control of the assets. At your death, the terms of trust will be performed by the trustee.

    Another variant of a living trust is an irrevocable trust . This acts as a revocable trust by funding your trust and determining the terms for which assets will be distributed at your death.

    However, with an irrevocable trust, you control the assets of trust. This also serves to protect the assets of trust from mortgage rights and creditors.

    The second type of trust is a testamentary trust . This is a trust created at your death. Trust is typically created in your will.

    At your death, all assets will be moved to trust. Even if you have no financial assets, you can use the income from a life insurance policy to create a testamentary trust.

    The trust document will be prepared while you are still alive. But it will not come into effect until your death, when trust is funded and the conditions of trust are performed.

    Configuring a Trust

    The first step is to store and evaluate all assets you own. Depending on the type and number of assets, this may be an involved process. But it helps you determine what kind of trust you need to set up.

    Generally, a living trust will be more appropriate for those with larger properties. Testament trust will work better for smaller real estate because they do not incur costs and potential tax liabilities generated by living trust.

    Because trust is a legal arrangement, you absolutely need to prepare it by a lawyer who specializes in trust and real estate planning.

    This is particularly important because the laws are slightly different in each state, as is the fact that each person's financial situation and distribution requirements will be different.

    A qualified lawyer will not only know the standard regulations of a trust, but will also know the issues that are asked to determine any particular circumstances.

    He or she can also help you choose the best type of trust to create and can advise you on any unexpected consequences.

    For example, if you create a living trust, taxes may have to be paid on income generated by the assets of trust.

    You also need help to decide if a revo cable or irrevocable trust will be in your best interest, as the latter means you control your assets.

    Funding Your Trust

    You need to create a tax-friendly plan to fund your trust, if it is a living trust. When you transfer assets to a trust, the transfers are subject to the federal gift fee.

    According to current tax laws, you can go up to $ 15,000 a year for trust without achieving the tax (or $ 30,000 from both you and your spouse).

    Any amount in excess of $ 15,000 will require the submission of the IRS Form 709 – United States Gift Tax Return. By filling out the form, you can claim a credit against your $ 11.4 million lifetime waiver, avoiding the gift fee.

    If you are to create a testamentary trust, you must have a lawyer preparing your will in such a way that it will happen.

    It will include the transfer of your assets to the trust at your death or as mentioned above to create a life insurance that will finance it if you have little or no financial assets.

    It will also explain to a trustee and other instructions to manage and distribute the funds in trust.

    Related posts:
    New tax laws make planning of real estate easier than ever
    Life insurance tax

    Composition of a planning team for real estate

    A competent real estate planning lawyer becomes the first, most important person in your team. However, depending on the size of your property, you may need other experts.

    If you have a large property and you want to create a living trust, you may need a CPA service. He or she can help determine the tax effects of creating trust, as well as providing any returns, especially when trust is established.

    You may also need to engage in an investment broker to transfer ownership of financial assets to trust.

    A life insurance agent becomes a necessary party in your housing plan. Life insurance revenues will eventually become part of your property and may even represent most of the trust assets if you create a testamentary trust and do not have large assets.

    Life insurance may also need to be included in the trust to cover any property taxes or to make special provisions in confidence. These may include providing extended care to one or more recipients or creating a business follow-up plan.

    You must also appoint a trustee. This can be all you have a high degree of confidence in, including a family member or close friend. If you do not have someone in your personal circle, you can also appoint a lawyer, financial planner or other financial professional.

    How life insurance can help you with real estate planning

    If you are thinking about real estate planning, especially the creation of a testamentary trust, we are here to help.

    We can work with you to create the most cost-effective life insurance, either to fund your trust at your death or to cover specific expenses within your trust.

    This may also include taking care of certain beneficiaries, covering taxes or providing the funds needed for an effective business follow-up plan.

    Working on establishing plans is part of what we do. We specialize in providing affordable life insurance for people with existing health conditions.

    If you move toward real estate planning or establish a trust, add us to your team. We are here to work for you, not the insurance companies!

    * While doing everything we can to keep our site up to date, please be aware that "current" information on this page, such as quote estimates or relevant company information, may only be accurate as of its latest editing date. Huntley Wealth & Insurance Services and its representatives do not provide legal or tax advice. Please contact your own legal or tax adviser.

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