In desirable parts of the Denver, including the Cherry Creek neighborhood, housing prices have increased over the years. For couples who have lived in a neighborhood for 20 or 30 years, if might be time to consider a change – call is “rightsizing” rather than downsizing though.
While it may not immediately seem to be a part of the estate planning process, a home is often one of your most valuable assets. Selling and moving to a smaller no maintenance condo may lower monthly costs. In other cases, staying put and completing a transfer on death deed could avoid probate and pass on a stepped up basis.
Consider monthly costs associated with the home
In a poll by Merrill Lynch, 54 percent of the people who planned to stay put stated it was because they love their homes. It’s no surprise, because of the memories of raising children in a home and relationships with neighbors.
But the costs of a home need to be viewed as a living expense. In some cases, it is actually more costly to downsize. Depending on location and considering increasing housing prices and community living fees, a smaller condo could actually cost more.
Stepped up basis
Capital gains need to be part of the analysis. A couple that bought a property for $125,000 in 1978 might now have a home worth $750,000. The IRS does not tax the first $250,000 of gain on a residence for an individual ($500,000 for a couple). A gain over this amount is taxed at the 15 percent capital gains rate.
Staying in the home and passing it down might be a good option depending on family dynamics. The gain would be stepped up at death. In the above example, the couple could save on their taxes and provide a home for a child who might not be able to afford buying in a favorite neighborhood.
When is does make financial sense to move, re-investing the gain is a good idea. Lowering monthly costs can also be a way to top up investments.
Seeking the guidance of an experienced estate planning attorney is helpful in making these important decisions. Putting in place a broad estate plan will ensure that loved ones are protected, but also understand your wishes.