One way to save a substantial sum on estate taxes is simply gifting money to family while you’re still around to enjoy the process.
Doing so is not only more fun, it can be tax advantaged as well.
Note: We’re lending professionals, not tax experts. For full details about your exact situation, please seek the advice of a licensed tax professional.
As of 2017, the annual gift-tax exception is currently $14,000 per year.
Here’s an example scenario:
Mr. and Ms. Jones intend to pass their home to their two adult children when the time comes. The home was paid off in full.
The conventional way of leaving the home was to either name the children in a will, or add them to a family trust. While a reverse mortgage is not a replacement for those tools, one option it does provide is “smoothing out” the financial impact of legacy gifting.
Mr. and Ms. Jones instead take out a reverse mortgage and give the children and grandchildren $14,000 a year for several years, a portion of which was added into a Coverdell Education IRA for the small children to pay for college.
The equity is still flowing to the children, but while the parents are around to enjoy the transfer, and the client was able to help grandchildren pay for college. The reverse mortgage will become due when Mr. and Ms. Jones both (not one, but both) pass away, move, or sell the home – like a regular mortgage.
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