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How tax law, estate planning and real estate intersect

On Behalf of | Feb 21, 2020 | Estates & Trusts |

Creating an estate plan takes time and significant consideration. The benefit of creating a seamless flow of assets to your heirs is critical in maintaining your wishes. 

Two of the elements to consider during estate planning are taxes and real estate. These critical parts of your life take measurable thought when trying to do what is best for your beneficiaries. As such, understanding how these pieces fit into an estate is vital in creating a strategy dealing with common issues that may arise. 

Estate taxes 

Your net worth impacts how the government taxes your estate. One of the first things that your heirs deal with is the valuation of your various holdings and the payment of estate taxes. The amount of this tax includes all assets in your name, including things like: 

  • Bank accounts 
  • Revocable trusts 
  • Investment and retirement accounts  
  • Personal belongings 
  • Life insurance 

When a spouse jointly owns any of these, factor half of the value to arrive at your gross estate value. From this calculation, deduct all debts, estate administration fees and funeral expenses. The final figure is what the government uses to calculate the amount of taxes that your estate owes. 

Real estate valuation 

The value of any real estate left in your estate may increase or decrease the tax liability. Part of its impact on your estate involves the assessment of the property and how much your estate stands to gain or lose when it sells. If the property is in a trust, the beneficiaries may still pay taxes either upon its sale or as part of estate taxes. You may establish a revocable trust that holds property or cash used to pay estate taxes, lessening the burden on your beneficiaries. 

Estate planning professionals may advise you on how to lower your tax implications upon your death utilizing various tools. Speaking with someone who has experience with estate planning, tax law and real estate transactions may help in preparing directives that are easier for your heirs to deal with after your death. 

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