Q: What are the best ways for a child to purchase assets from parents and avoid the estate tax (state+federal)?
I recently heard that the Federal Estate tax was around 40%... Also, I heard that on top of the federal estate tax, some states had their own estate tax. Therefore, I want to avoid this by purchasing the assets from my parents over time while they are alive. Would this be feasible? What are the tax consequences? What if I bought their membership interest in the LLC that owns the property?
A:
Again, this is not a real estate question but rather Estate planning one. You need consultation with experienced estate planning lawyer as you are not taking into consideration an appreciation in value of the real estate in your parents hands over time.
If you purchase it from them you will inherit their original Basis and hense will be hit with huge capital gains taxes at sale. If you receive it from them in a Trust after their death you may avoid such tax as you will get Step Up basis.
Again call experienced Estate Planning Attorney.
Inna Fershteyn
Law Office of Inna Fershteyn and Associates, P.C.
1517 Voorhies Ave, Suite 400
Brooklyn, NY 11235
tel: 718-333-2394
fax: 718-701-8859
www.BrooklynTrustandWill.com
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A: It depends on valuation. There are high floors on estate taxes, and it is possible, if the new tax bill becomes law, the estate tax will be eliminated at the Federal level. Often, if justified by values, trusts can be used.
A: If you're purchasing the assets with your own money there is NO estate or gift tax implication so long as it's reasonably tied to the fair market value for the assets. Furthermore, there is a lifetime exemption in the estate / inheritance tax at the federal level for $5.4M in gifts from individuals and $10.8 for married couples. Meaning so long as they are under that limit in taxes / gifts there is no estate tax due. As the other attorney pointed out, you should have a consultation with an estate tax lawyer to go over your specific situation.
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