Real estate owners dodged several bullets in 2021. Significant real estate and gift tax increases were proposed earlier in the year, but they were postponed. They may be revised in 2022. If not, the 2017 changes will expire after 2025. This will cut the lifetime property tax and gift tax exemptions by half, among other tax increases.
While waiting for the inheritance and gift taxes, there is action to be taken now. Here’s what you have to do while Congress talks about your future.
Update and evaluate your financial position. You don’t need a real estate planner to complete the first steps of any good real estate plan.
Compile all asset details. Lists the asset name and account number or description, as well as the current value and how the asset is owned (such as individual, joint, or trust). Remember assets that are not included in the certified real estate, such as severance pay, pensions, life insurance, and assets held in trust.
Also, please provide details of the liability.
Then update your retirement plan, or at least make a basic cash flow forecast for your expected income and expenses. You want to know how much wealth you need to keep to stay financially secure for the rest of your life. Wealth beyond that may be transferred to reduce property and gift taxes prior to the effective date of the change in law.
The more this work you do now, the cheaper and more complete your real estate plan will be revised.
Check your current plan. Do this again when you meet the estate planner. But now considering a plan with yourself and your spouse will refresh your memory and perhaps inspire ideas for changes and improvements.
Set your goals. Some of the goals may have changed since the latest plan was created. The composition of your family may have changed. Or, potential changes in law could affect your goals.
Check advance directives and the power of attorney system. In many cases, when these documents were created, the choice of people to make decisions for you seemed automatic. These agents may not be optimal at this time. As part of this review, you may find that your financial and medical providers have changed and that your new provider needs a copy of the updated documentation.
Consider end-of-life and end-of-life choices. Advance directives and other documents usually include your preference for medical care in a particular situation. They may also have expressed their preference for moving to a living support facility or other facility rather than receiving home care.
Your view of these issues may have changed, especially as technology, medical and other factors have changed. Review the choices expressed in the current document and decide if you want to make any changes. Get ready to discuss these with your real estate planner.
This is also a good time to consider or reconsider your plans to pay for long-term care that may be needed in the future.
Discuss with your family. The advisor does not agree when the family should participate in the planning process, but agrees that the family should not be in the dark. Real estate planning surprises often lead to real estate disputes and family incongruity.
It’s a good idea to discuss the basics of planning early with your family. Talking to children about their financial situation and goals may lead you to make changes to your plans. For example, some parents were surprised to learn that their children didn’t really want to take over their vacation home and would sell it soon. It doesn’t make sense to plan a way to share ownership of a vacation home with children when they don’t want to.
Some parents decide that it is better to give a lifelong gift after knowing their child’s financial situation and goals.
Heirs also need to be given a good idea of whether they are likely to inherit or not. That information can affect their own plans.
Get ready to implement. Many real estate plans fail because the plan was not fully implemented. In most cases, the beneficiary designation form will not be updated for severance accounts, life insurance, and annuities. Many real estate owners have failed to transfer ownership of their assets to a living trust or other means.
Communication and distribution. Some documents need to be distributed to key persons. Others need to know what their role in your real estate plan is and how they can get the documents when they need them.
Once the power of attorney is in place, you need to distribute them to your financial services provider to ensure they are acceptable. Your healthcare provider should know about advance directives and probably have a copy of them. Some states offer online registration of advance directives, so healthcare providers can search for advance directives as needed.
Don’t overreact to the legislation. Some people have already modified their real estate plans in response to congressional proposals, and some real estate planners recommend early action. However, most people should not take irreparable steps prior to enactment, as the proposal may not be legal or the details may change.