Tax-Smart Estate Planning

Estate Planning requires a lot of decision making. Many of the choices you need to make affect you and your family in different ways, especially as it relates to taxes. Information is the best defense against feelings of overwhelm and confusion as you navigate the process of how to best transfer your assets to your heirs and grantees.

For example, when deciding how to transfer your property, the most popular options are choosing a Quitclaim Deed or Transfer on Death Deed.

Quitclaim Deed

A Quitclaim Deed transfers real estate or land to another individual or into a Living Trust. The transfer of ownership is executed before the grantor’s death, which can be a strategy to avoid the property going into probate and the family incurring additional costs. Many people are familiar with this type of deed and often call it a “quick claim” deed because it’s so easy to file.

Transfer on Death Deed

However, a Transfer on Death Deed (TOD), which fewer people are familiar with, can help families save tens of thousands of dollars in taxes. Like the Quitclaim, a TOD is a way to avoid an expensive probate process, but unlike the Quitclaim, a TOD is considered a tax-smart approach to estate planning.

Tax Implications

From a tax perspective, a Quitclaim deed doesn’t trigger a taxable event at the time of transfer, but a grantee may be faced with capital gains taxes if the property appreciates in value and/or gift taxes if the transfer is considered a gift. Conversely, with a TOD deed, there is not only the potential tax benefits of avoiding probate but this type of deed transfer results in a step-up in basis for the property. A step-up in basis means “the cost basis receives a “step-up” to its fair market value, or the price at which the asset would be sold or purchased in a fair market. This eliminates the capital gain that occurred between the original purchase of the asset and the heir’s acquisition, reducing the heir’s tax liability” (TaxEDU glossary).

Both Quitclaim deeds and transfer on death deeds have tax implications, and anxiety around making the smartest choice for you and your family can sometimes make estate planning seem too complicated to pursue. At Sable Law Group Wisconsin, we can help ease that anxiety and demystify the estate planning process to empower you to make the best choices for your future, for your family.