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Steps to protect assets that will not result in additional taxes

Many Georgia residents are concerned that long term health care costs uncovered by Medicare or Medicaid will eat up their inheritances and leave them little or nothing to pass on to their loved ones. To avoid this situation, it is not uncommon for older individuals or couples to protect assets such as their homes by deeding them to their children or other heirs while they are still alive. However, doing this can lead to eye-watering tax bills.

The IRS home-sale exemption allows homeowners to sell their primary residences without paying capital gains tax on the first $250,000 of profits, but this benefit is not transferable. This means that deeding a primary residence to heirs to protect the owners from health care costs may lead to a hefty tax bill for the heirs, but there are ways to protect assets that may allow heirs to avoid this exposure.

Creating a revocable trust could not only place a home out of the reach of creditors, but it may also allow heirs to sell the property after its owners pass away without owing any capital gains tax on the proceeds. Smaller assets can also be passed on without incurring a tax penalty. A gift tax return is not required when the gift in question is valued at $14,000 or less, and the IRS does not limit the number of people that can be given such gifts each year.

The tax laws in the United States are extremely complex and evolving, and an approach that is sound today could be rendered ineffective in the future by changes to the tax code. An attorney with experience in this area may be able to help those concerned about asset protection to achieve their goals while avoiding unnecessary taxes and could also suggest revisions to the the agreed-upon strategy when warranted by changes in the tax laws.

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