You’re trying to pass assets on to the next generation without having to pay inheritance taxes. You’d like to do this in advance to reduce the size of your estate.
Unfortunately, you know that you are only allowed to gift assets with a value of up to $17,000 per year without paying taxes. You could spend years or even decades transferring these relatively small gifts to your intended beneficiaries, slowly chipping away at your estate to reduce the tax burden.
However, this doesn’t help you with high-value assets. For instance, maybe you have a home that is worth $1 million. You’d like to transfer it into the ownership of one of your adult children before you pass away to get it out of your estate, but its value far exceeds the amount of a non-taxable gift.
Selling for a low price
What some people consider is simply selling the house to the beneficiary but giving them a tremendous bargain. For instance, you may decide to just charge your beneficiary a single dollar. This way, it’s not a gift because they’re buying it from you, so you believe you can get around the gift limits and inheritance tax laws.
Unfortunately, though, this tactic doesn’t work. Generally, the government still looks at this as a gift. They’ll just compare the actual market value of your house to the sale price, whether it’s a dollar or another nominal amount. So this could still trigger significant taxes, even though you didn’t make that beneficiary pay you the full value outright.
It’s important to know what tactics do and do not work when addressing inheritance taxes, and it could be very helpful to work with an experienced law firm at this time.