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  • Michael J. Greenberg

Thinking of Selling a Home? Estate Planning Considerations for 2023 and Beyond

Two weeks ago, I spoke to a group of the top real estate agents of Keller Williams in NYC. My

presentation “Estate Planning 101: Considerations for Those on the Move in 2023” discussed

both the basics of trusts and estates as well as the unique considerations for homeowners and new purchasers. I was so impressed by the depth of knowledge of the team and the thoughtful questions they asked!


Here are three topics that I discussed that were of particular interest to the team:


Who has the power to sell the home and what are some possible delays to a sale?


Before listing a home, a realtor would want to understand who has the right to complete the sale. Imagine putting in the effort to list the home, stage, take photographs, set up showings, get offers, etc. only to find out that the client does not have the authority to actually complete the sale!


Owner… Executor… Trustee … Power of Attorney … Guardian…


Who has the authority to sell? A Single or Sole Ownership, Joint Tenants (assuming all Joint Tenants agree) a home owned in Surviving Joint Tenancy by the surviving tenant/tenants, and the Executor of an estate or the Trustee of a trust that the property is within all have the right to dispose of real estate assets.


Someone who has a Power of Attorney can also complete a sale for the Principal. I typically advise my clients to select as their Power of Attorney very trusted individuals as their agents, such as their spouse, adult children, other family member, or close friend. This can be important because if the owner becomes incapacitated, the residence is stuck in limbo until the court appoints a Guardian. A court-appointed Guardian can then sell the home (however, this is a last resort - Guardianships for an incapacitated individual can be very time intensive and expensive).


If the homeowner has just died, a property usually can not be sold immediately unless it was

held in Trust or through Surviving Joint Tenancy. If a residence passes through a will, the

property must go through the Probate process. If the owner died without a will (Intestate), it

must go through Administration. It can take months or even years for Letters of Testamentary

or Letters of Administration to be issued by the Surrogate’s or Probate Court. If a home is

owned through Tenants in Common, the property still goes through Probate so it can not be

sold immediately after the passing of the first owner (there are appropriate estate planning

reasons to title real property way, but it could delay a sale). In the meantime, the property can

not be sold and maintenance, taxes, and homeowner’s insurance still need to be paid.


What are the Tax considerations in a sale?


The sale of a primary residence has a $250,000 exclusion from capital gains taxes ($500,000

for a married couple). However, it must have been the person’s primary residence for two out of the last five years. The step up in tax basis is an adjustment in the cost basis of an inherited

asset to its fair market value on the date of the owner’s death.


For example, imagine a woman purchased an apartment in the 1970s for a mere $100K. At her

death in 2020, the apartment was appraised for $1.2M and her daughter inherited and

immediately moved in. Three years later, the daughter decides to sell the apartment. She

accepts an offer for $1.4M. The basis is $1.2M and the appreciation is $200K because she

lived there at least two out of the last five years as her primary residence. She will not have to

pay any capital gains tax on the sale of the apartment (while if her mother had given her the

apartment while she was still alive the capital gains basis would have been $100K - there is no

step up and she would have had to pay substantial capital gains tax). This is why it is often

better to die with assets in a person’s name or in trust as opposed to gifting during a person’s

lifetime.


What are the Reasons for Placing Residential Real Estate/Primary Residences in Trust?


There are many benefits to putting one’s home in a trust - it can protect from estate taxes, help with Medicaid eligibility, and even provide asset protection.


A trust can be used to allow beneficiaries to inherit a property at a later point while a current loved one is allowed to continue using it. Imagine the situation of a second marriage between two individuals with children from a prior marriage. If the home was purchased by one of them, he might want his adult children to benefit from the sale rather than the children of his spouse upon her death. In this instance, a trust could guarantee his wife the right to continue to live in the marital home until her death at which point, it would then be sold for the benefit of his children.


However, co-op boards in New York City and in the surrounding areas can sometimes make

transfers of co-op apartments to trusts challenging because they want to make an individual

personally responsible and liable for maintenance, etc. This can sometimes cause delays in

being approved and sometimes the boards of cooperative apartments will expressly prevent

transfers of co-ops to trusts.


To learn more, please reach out to Michael J. Greenberg for a consultation.

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