24 Feb Selling a family home to save taxes

Q. I’m 80 and my husband is 82. We’re both healthy and we have adult kids and grandkids who live around the country. I like having the home they grew up in for them to come back to for family occasions, but my husband thinks we should move to a state with lower estate taxes so we can leave more for the kids. How can we decide?
— Unsure

A. Decisions about a family home can be tough. It requires a lot of thought, and you need to consider both the quantitative and the qualitative.

First, make sure you are financially healthy.

“To do this, find out how long your assets and income sources will last, said Eric Furey, a certified financial planner with RegentAtlantic in Morristown. “Ask questions like: do you need to downsize your home or move to another state to make your retirement plan work?”

Assuming your financial health is in check, Furey recommends you have a candid discussion with your children to find out how important the family house is to them today. Ask them what their plans would be for the home when they inherit the property.

“While your sentimental value is high, you may find out the kids are ready to start new traditions,” Furey said. “If the kids want to keep the house, then you can start to quantify the sentimental value.”

That’s where the estate tax conversation starts.

The New Jersey estate tax exemption is $675,000 per person, Furey said.

“New Jersey’s estate tax system is progressive which means the more your estate is worth, the higher the rate is,” Furey said. “The estate tax rate starts at 4.8 percent and caps out at 16 percent.”

After you assess how much will go to the state government, you must weigh that against the potential future memories in the home, Furey said.

Many New Jerseyans decide to stay in the state if their grandchildren are here, said Brian Power, a certified financial planner with Gateway Advisory in Westfield.

“They are willing to expose their estate to whatever New Jersey estate taxes for the sake of seeing their grandchildren whenever they want,” Power said. “This might be a very costly decision for their heirs.”

With proper planning, couples can use the $675,000 exemption per person, or $1.3 million for both spouses, Power said.

But even with proper planning, he said, it doesn’t take much living in New Jersey to be worth more than $1.3 million. Any amount above $1.3 million will be taxes, and you have to do the math to see how expensive that would be for you, he said.

Any amount above the $1.3 million will be taxed, depending on the size of the estate. So you can do the math on how expensive it would be to keep New Jersey as your primary residence.

Power said his clients who have moved out of state have enjoyed a better quality of life and use some of the money that would have been lost to the New Jersey estate tax to travel around to visit with the children and grandchildren, or fly them in to visit.

It sounds as though your family doesn’t live in New Jersey, so you should ask yourself how much they really visit.

“Maybe you are too emotionally tied to your home to see that it would make sense to move and save the estate taxes,” Power said. “If you and your husband can not break the tie, I would recommend that you bring your children into the conversation and show them the numbers for staying in New Jersey versus moving out to a state without an estate tax.”

Ultimately it is your children and your grandchildren who lose out on the money that New Jersey will take from them, Power said, so you should balance that with how important it is to them to come back to the home they grew up in for family occasions.

Some couples have their cake and eat it too, Furey said.

“What I mean by this is they maintain their old New Jersey home, but they claim a new state as `home,’” Furey said. “Doing this requires a carefully analysis on a couples’ ability to maintain two homes as well as an accountant’s help to ensure the necessary steps are taken when establishing a new home state.”

The goal of establishing a new home state is that the new state assesses a lower estate tax, and in many instances, also reduces state income taxes as well as a lower cost of living, Furey said.

If your financial health is in question, then you need to make the necessary, and difficult changes, to get on the right course, Furey said.

“The worst case scenario is making new memories and traditions elsewhere, and if you leave more inheritance than you planned for the children, then they can always repurchase the house with the money you leave them,” Furey said.
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This story was first posted in February 2016.