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Using trusts to transfer New Jersey homes to the next generation

We've written articles in the past few weeks that discuss some of the changes under the new tax laws. For individuals in New Jersey, one of the biggest benefits comes from the increased gift tax deduction. Under the old laws, individuals who gave gifts of more than $1 million would be penalized with hefty tax consequences.

When the new laws were written, that limit was raised, and individuals are now allowed give up to $5 million in gifts without a tax penalty. The increased limit means this is a good time for seniors to consider using trusts to transfer their property to the next generation.

Qualified personal residence trusts (QPRTs) are specialized trusts which allow individuals to live in their homes for years before transferring ownership of the property to their heirs. Given the current market, many homeowners have property that would be valued at much less than its actual worth. Using a QPRT allows those homeowners to transfer the property at the reduced value without actually moving out of the home.

The lower values of homes coupled with the increased gift-tax exemption makes it possible for many individuals to transfer property without suffering any tax penalties.

Transferring property, however, is not as simple as just signing up for a trust. To effectively maximize savings and minimize conflict, families should plan ahead and carefully consider their options.

Like any estate planning tool, QPRTs have risks as well. Read more in our next post to learn about some of the potential downfalls of using a trust to transfer your property.

Source: The Wall Street Journal, "A Matter of Trust: Giving Away a Home," Anne Tergesen, 18 March 2011

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