WHAT property do you have? WHY do you want to transfer it? WHO do you want to receive the property? WHEN do you want to transfer it? HOW do you legally transfer the ownership of the property? Answering these five questions will help you develop a plan for transferring your property to the next generation.
WHAT types of property do you own? Because why, to whom, when and how you transfer property ownership may vary depending on the type of property. Tangible personal property includes your personal effects such as jewelry, furniture, guns, artwork, coin collections and Barbie dolls. Intangible personal property does not have a physical form, except maybe a certificate, and includes checking and savings accounts, CDs, stocks and bonds. Items you may not think of as personal property include credit card miles and points, business interests and partnerships, intellectual property and timeshare certificates. Then there is real estate such as your home, income producing property, investment property and vacation property.
WHY are you transferring the property? What are you trying to accomplish? Perhaps you are transferring it for sentimental reasons. You want to keep something in the family such as a family farm, vacation home or family treasures. Perhaps you want to provide a source of income like rental property that supplies cash flow. Maybe you are trying to transfer property to be a source of wealth. For the recipient, remember that income and investment properties often have to be managed and there can be varying costs and expenses.
The WHY of transferring property shouldn’t be just about what it can do for the recipient. There may be ways for you to benefit as the giver. You may not have to recognize capital gains when you transfer property, with that recognition being transferred to the recipient. Tax laws change, but currently Tennessee has no gift tax and you can give away $15,000 per year without using any of your federal exclusion. The federal lifetime cumulative exclusion is $11.2 million. If you give your property to charity, you may get a tax deduction. Finally, when you give something away, you may be able to see others enjoying the use of the property, you may alleviate yourself of the burden of owning the property, and you may be downsizing or “right sizing” for yourself.
The WHAT and WHY should tie in with WHO. To whom do you want to transfer the property? It may be children, friends or charities. WHO may be a personal or a financial decision, but be aware of some inherent problems with multiple recipients. Often the recipients may not have the same vision or there may be an uneven ability to share in the management or the costs.
WHEN do you want to transfer the property? One thing to consider is that if you transfer property during your lifetime, the recipient receives your cost basis for use in determining the gain on the sale of the property. However, if you transfer property upon death, the recipient’s basis is adjusted to fair market value as of the date of death, which may result in less taxable gains on the sale of appreciated property. Not ready to relinquish full control of the property during life or at death? Instead of giving property outright, you can place property in a trust that provides guidelines for future distributions.
Finally, you need to know HOW you legally transfer ownership of property. Your Will may not control the way all your property passes. For example, if you own property jointly, it may pass by operation of law to the other joint owner. The deed for your real estate determines whether you own property as tenants by the entirety (for husband and wife in Tennessee), joint with right of survivorship or simply as tenants in common. If tenants by the entirety, the real estate passes to the surviving spouse. If joint with right of survivorship, the real estate passes to the joint owner. If tenants in common, then your share will pass as you direct in your Will or, if you do not have a Will, by intestacy law.
Beneficiary Designation forms also supersede your Will. Beneficiary Designation forms can be attached to bank accounts, life insurance policies, retirement plans, IRA accounts, etc. Generally, your Will controls the passing of those assets that are in your name alone that do not have a beneficiary designation.
I hope this article provides a point for you to begin your plan. Good luck as you consider the WHAT, WHY, TO WHOM, WHEN, and HOW when making transfers of property for whatever reasons you choose.
I must give credit to Virginia Couch at our office who shared with me a recent presentation about passing property to the next generation. Thank you, Virginia, for allowing me to use your outline as the basis for this article.