| Dear Mr. Premack: My husband passed away four
months ago. When he knew he was getting ill, he signed a deed to our house
putting it into my name only. Here’s the problem: his other assets have
a total value of $572,000. This includes his half of our joint bank
accounts and savings (which were in survivorship accounts). The house is
worth $125,000. I’ve been getting conflicting advice on estate taxes. Do
I need to include half the house’s value as being owned by him? It will
make a big difference. Thank you. – A.M.
Estate taxes can take a really big bite out of your resources unless
they are managed properly. In general, two tax rules apply. First, your
husband’s estate could give anyone up to $600,000 tax free. Second, any
amount your husband left to you is estate tax free.
You do not need to include half the value of the house as being owned
by your husband. A recent court of appeals case helped define the law
here. When a spouse gifts an asset to the other spouse, the entire asset
becomes the separate property of the recipient. The deed signed by your
husband turned 100% of the house into your separate property.
From a monetary perspective, his gift to you did not change things. If
he had not made the gift (and had owned ½ the house when he died) his
estate would have been $634,500 instead of $572,000. But he left the
entire amount to you, his wife. There is no estate tax on any amount left
to your spouse, so either way the tax would have been zero.
From the perspective of “unfinished business,” your husband’s
gift did make a difference. Because you already owned the house before his
death, you avoided the expense of probate for transfer of this asset.
Also, because his assets were below $600,000 at the time of his death
there was no need to file an estate tax return. You saved time and effort.
Unfortunately, all of those benefits are short term. When your husband
left everything to you, you ended up with an estate of nearly $1,300,000.
Someday when you pass on, only the first $600,000 will go to your heirs
tax free. The remaining $700,000 will be exposed to federal estate taxes,
and could cost up to $277,000 when you die.
This tax could have been reduced with proper planning before your
husband died. You should have left the house alone and eliminated the
right of survivorship arrangements on your investments. His Will would
have then controlled his estate – and should have been written to leave
a portion to a trust for your benefit. With this method, up to $240,000
could have been cut from the taxes and saved for your heirs.
Since that opportunity was missed, you need to get personal guidance on
the next legal steps you should take. You can anticipate high estate taxes
when you die unless you begin planning now to reduce the taxes. Visit an
estate planning attorney right away. |
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