miller nash graham & dunn llp | Fall 2015 brought to you by the trusts & estates practice team Estate Planning Advisor Selling Your Residence? Plan to Maximize Your Tax Exemption 3. The Survivorship Exception 5. How About the Second Home? Sale of a couple’s residence within The home that a taxpayer uses as the two years following the death of a residence for a majority of the year is by Jack B. Schwartz one spouse will qualify for the full normally considered his or her princi- jack.schwartz@millernash.com 503.205.2560 $500,000 exemption, assuming that pal residence. But other factors, such other requirements are met. as voting registration, driver’s license, motor vehicle registration, and address Planning to downsize? Helping a 4. Trust Ownership Issues used for income tax returns, can enter parent sell the family homestead? The Ownership of the residence by a into the determination. Internal Revenue Code permits gains revocable trust will not affect eligibility from the sale of a principal residence to 6. Is the Lot Next Door Eligible? for the exemption. But if the grantor of be realized tax-free, subject to relatively the trust dies and the trust becomes The exemption can apply to sales of generous limits, as long as certain re- irrevocable, the exemption, including vacant land adjacent to a residence if the quirements are met. Here are a few the survivorship exception discussed ownership requirement is met, the land pertinent points: above, will no longer be available to the was used as part of the residence (e.g., 1. The Basic Rule extent that the property is owned by the as a playground for the kids), and the irrevocable trust. This may not make a land was sold within two years of the If a couple (or either spouse) owns difference in most circumstances, since sale of the residence. real property used by the couple as the tax basis of the residence would their principal residence for two of the (continued on page 5) increase to the fair market value at the five years ending on the date of sale, grantor’s death. But loss of the exemp- $500,000 of the gain on sale ($250,000 tion could result in some taxable gain for an individual) will be exempt from if, for instance, a sale were delayed so capital gains taxes. Ownership and use that a surviving spouse could continue periods need not be concurrent. For to live there, and the property increased inside this issue example, a couple who rented their resi- in value in the meanwhile. In any dence for two years before buying it and 2 Working Backward Still Takes event, the possible loss of the exemp- You Forward sold it a year later would qualify for the tion should be considered in allocating exemption. Purchase of a replacement 3 Is the End of Discounted assets to bypass or credit shelter trusts residence is not necessary in order to Family Partnership in Sight? following the death of one spouse. qualify for the exclusion. 4 The Basics of Charitable Remainder Trusts 2. The Nursing-Home Exception Time residing in a licensed care facility is credited toward the two-year residence requirement. millernash.com
Working Backward Still Takes You Forward owner, and owner’s family, income stream that they would needs after the owner’s exit. have enjoyed if all had gone as planned? 2. The Right Person. The owner by William S. Manne • chooses his or her successor If you hold on to your business bill.manne@millernash.com 503.205.2584 (children, key employees, co- until well into your golden owners, or a third party). years, does your current plan Business owners are often caught take the long-term issues into 3. Income Tax Minimization. in a seemingly never-ending cycle of account? How will you make This maximizes the amount decisions to make and things that need sure that your business retains of cash in the departing to get done. Jumping onto a rapidly and increases its previously owner’s pocket. spinning carousel can be daunting, so determined value? Thinking of exit and estate plan- it is sometimes easier to busy ourselves • If you plan to transition some ning in tandem brings a business with other things, off to the side. But or all of your ownership in owner’s entire picture into focus: planning for the future of your busi- the business to one or more ness and executing those plans is the For example, when you update your children, does your estate plan only way to slow the carousel down estate plan, you most likely revisit your adequately address your prefer- and turn the never-ending circle into a expectations for your family, during ences for the business-active direct path to your goals. your lifetime and beyond. You will re- children as well as those who view and update the value of your busi- If you are uncertain about where to are not involved in the busi- ness to see whether it will support your jump in, start at the end—with your ness, or will they fight it out estate plan. All business owners after you are gone? need an estate plan. Creating or up- “There isn’t one right answer • If you die before you exit the dating your estate plan is a specific business, are you certain that to the ‘estate or exit planning?’ project with a beginning and an end. your family will still receive question. In the end, you must But it will take you one step closer to the full value of the business? your successful future. take action on both fronts, since (This question is especially A successful estate plan achieves important to answer if you are a failure to act in either creates three important personal goals: the sole owner. Sole owners lasting problems not just for are unlikely to have a buy-sell 1. Financial Security (for the you, but for your business and agreement because there are decedent’s heirs). no remaining co-owners to your family.” 2. The Right Person. The de- purchase and/or continue the cedent (rather than the state) business.) chooses who receives his or plans. In securing an estimate of value, Your estate plan can manage these her estate. you possess a piece of information that issues, but does it? 3. Estate Tax Minimization. This is critical to both your estate plan and It is worth repeating that you must reduces the government’s bite, your ultimate exit plan. devote the same energy and analysis to leaving more funds for one’s Estate planning gives you a valuable lifetime transfers (benefiting you) as heirs. perspective on your future. So start at you do to a transfer occurring at your Next, a successful business exit the end and work backward. death (benefiting your family). Since plan achieves three important owner both planning your exit from your busi- • If something happens to you goals: ness and planning your exit from this before your ideal business exit 1. Financial Security. The busi- can occur, how will you provide ness sale or transfer provides your family with the same (continued on page 6) the amount of income the Estate Planning Advisor | miller nash graham & dunn llp | 2
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