Part of running for the office of President involves disclosing the details of one’s personal finances. When Democratic Presidential Nominee Hillary Clinton recently turned in that documentation, the public became aware of some of the Clintons’ estate planning measures. Part of their estate plan is the use of residence trusts, which could be a good fit for many Philadelphia residents.
A residence trust is a great way to shelter a home’s appreciated value from taxation. When the trust is created and the home is placed into the trust, a gift tax is assessed at the home’s value at that particular point in time. After the home is within the trust, any further appreciation is protected from taxation. This creates the ability to pass on a significant asset to one’s chosen heirs without incurring a hefty tax bill because the home is removed from the owner’s taxable estate.
The catch with these types of trusts is that the proper length must be determined at the time the trust is created. It should be long enough to cover a significant period of appreciation, but short enough to ensure that the owners do not outlive the trust. If that happens, then the home is placed back into the owner’s taxable estate, which defeats the purpose behind the trust.
In the example of Bill and Hillary Clinton, two residence trusts were created for the same piece of property. That serves to divide the value of the home, further reducing the tax burden by anywhere from 15 to 30 percent. The estate planning choices made by this high-profile couple could provide guidance to many in Philadelphia who are looking for similar options.
Source: Money, “Hillary Clinton Has Managed Her Estate the Way She Does Everything Else“, Kerri Anne Renzulli, July 25, 2016