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McCurrie McCurrie
& McCurrie, L.L.C.

680 Kearny Avenue
Kearny, NJ 07032-3010
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Using trusts to transfer New Jersey homes, part two

In the last post we discussed the benefits of using qualified personal residence trusts (QPRTs) as a tool to transfer your home to the next generation. Although the new tax laws in New Jersey make it possible for individuals to transfer $5 million in gifts without tax penalties, it is important to carefully plan how you will do so.

While trusts have their advantages, there are also plenty of risks associated with them. Individuals should not be discouraged by the potential challenges, but it is good to talk through the challenges as you are preparing your estate plan.

One thing to consider is what will happen with the home after it is transferred. If the plan is to keep the home in the family, there may not be problems. However, if the children who receive the home are interested in selling it, they could owe substantial capital-gains tax. In most situations, that tax would still be significantly lower than the estate-tax rate that would otherwise be applied, but a professional could help you determine that definitively.

In addition to the possible tax penalties, there can be other challenges with selling a home in a QPRT. There are limits on the amount of cash the trust can hold, so the homeowner must either reinvest the profit in other property or take back the cash. Anytime cash is withdrawn from the QPRT, it reduces the amount that will go to the heirs and defeats the purpose of using the QPRT in the first place.

Despite the risks, when QPRTs are used correctly, they can be an effective estate planning tool. Many people appreciate the option to transfer valuable assets without surrendering access to their homes or reducing the liquid investments that may be needed in retirement.

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

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