Your residence is probably your most important asset. It is the focus of your family. It is where you feel safe and warm and connected to each other. For those in early life, a home is a place full of possibilities, to be filled with the realization of dreams. For those in mid-life, it is a place filled with energy and the sounds of life. For those in later years, it is a place of familiar comfort that still echoes with the joys of earlier days.
Traditionally, the home has also been a good financial investment. It has been an investment that has risen steadily over the past several decades with less volatility than the stock market.
The home also has important attributes from a tax, estate planning, and asset protection perspective.
- Gain in the value of your home is tax free up to $250,000 ($500,000 if married filing a joint return) as long as you have lived in the house for two years. For example, if you are single and paid $200,000 for your home, you could sell it for $450,000 and not pay any income tax on the increase in value.
- Your home may provide asset protection advantages. In some states, such as Florida and Texas, your home is completely exempt for attachment in a bankruptcy proceeding. In other states, some of the equity in the home can be shielded from creditors. In states recognizing “tenancy-by-the-entirety” ownership between spouses, a creditor of one spouse cannot force a sale of the home to pay off the debt. In California, a debt incurred to purchase a home is “non-recourse debt.” In other words, it cannot be collected from other assets in the event of default.
- Your home is not considered an available resource when determining eligibility for Medicaid benefits.
- Your home is not considered when determining financial aid needs at most educational institutions.
- Your home can enable you to do advanced estate planning such as a Qualified Personal Residence Trust, or “QPRT.” With a QPRT, you can make a gift of an interest in the home to your children. If your home grows in value faster than the interest rate assumed by the IRS, the additional growth is passed without any tax. During the term of the QPRT, you can continue to live in the home.
Your home is important for you, both emotionally and financially. A qualified estate planning attorney can help you plan to make the most of your home during your life and after you are gone.
Mr. Ronald “Chip” Morrison, Jr. is a board-certified estate planning attorney with experience in both simple and complex estate matters and has been a Member of the American Academy of Estate Planning Attorneys since 2017. He can prepare an estate plan for you that achieves your goals of passing your assets to whom you wish and make sure that your selection of guardians for your children is heard by the court. The planning can even help minimize estate taxes. To learn more about how you can achieve your estate planning goals, please call our office in Metairie, Louisiana at (504) 831-2348 or contact us through our website.