Cautious Choices Suggested in Giving Property to Heirs in Montana
In planning your estate, you've decided to give some property to your favorite nephew. To do it with the least tax burden, you need to know the difference between "stepped-up" and "carry-over." A recent Montana State University Extension MontGuide can help. The title is fairly long - "Income Tax Impact When Selling, Gifting, or Leaving Property as an Inheritance" is now available at any county extension office in Montana.
E. Edwin Eck, professor emeritus of the UM School of Law and co-author of the guide, gave an example. A widow is trying to decide whether to give her home to her daughter. She and her husband bought the house for $45,000 40 years ago. Current value is $500,000.
"Stepped-up" versus "Carry-over"
If she leaves the house in the will, the value will "step up" to the larger amount and value at her death will be $500,000. However, if she transfers the home to her daughter before she dies, "carry-over" would be the original price of $45,000. And, if the daughter then sells the house for the $500,000 current value, she'll pay hefty taxes on the difference between the original price and the new value, called capital gain. The federal and state income taxes would be much higher.
As a result, Elk suggests that a stepped-up basis with a gift at death will lower the income tax hit. That's just one of the considerations the MontGuide provides in the free pamphlet. There are also other details you need to research. Of course, you should always check with your trusted financial advisor before making any decisions.
This is only one of dozens of MontGuides the the MSU Extension Service has available. They include tips on Testamentary Trusts in Montana, Rattlesnake Safe in Montana, Buying Local Meat in Montana and more. The 8-page guides are easy to understand and are especially important to rural Montana, with titles like "Cover Crops as Partial Replacement of Summer Fallow."
The Ravalli County Extension office is in the Ravalli County Administration Center on the ground floor, the same floor as the Treasurers Office. Browse through the titles. They're there to help you.