Real property owners in the San Jose area have numerous responsibilities to consider. They need to ensure that they set aside enough money to cover insurance costs and property taxes. They need to maintain their homes in reasonably safe condition to prevent others from sustaining injuries.
They also need to think about what may happen to their property after they die. Soaring real estate costs have helped increase the personal wealth of many San Jose property owners. Especially for those who bought in before the influx of tech capital, their homes could be the most valuable resource they own. In some cases, it may also be what pushes their estate over the threshold for estate taxes.
How can homeowners and real property investors address their assets and estate tax risks in an estate plan?
Ownership adjustments are a common strategy
In some cases, real property holdings on their own can be enough to trigger estate taxes. While California no longer collects a state estate tax, every estate in California is potentially subject to federal estate taxes. Estates worth millions of dollars may be subject to federal estate taxes.
If the testator passes in 2025, the exemption threshold for federal estate taxes is $13.99 million. Anything beyond that is subject to a progressive estate tax that can be as high as 40%. Many people address that risk by creating a trust. They may hold their real property and other high-value assets in a trust to limit or eliminate their estate tax risks.
Assets owned by a trust do not become part of a testator’s estate and therefore do not count toward the total value of their estate. By keeping a primary residence and other real property holdings out of probate court, testators can drop the value of their estates below the tax threshold.
Taking on a co-owner can also help, but there is much nuance to such solutions. The way that the co-owners hold title can influence whether a portion of the property’s equity becomes part of an estate after one owner dies. Those seeking to adjust ownership without starting a trust may need help ensuring they modify their vesting in the best way possible.
Establishing a comprehensive estate plan can help homeowners limit their risk of estate taxes. With the right plan, testators can maximize how much of their property passes to their loved ones when they die.