It is sometimes said a person's home is their "castle." Few actually have moats, drawbridges or turrets, but for many homeowners, their residence is their largest asset. According to the most recent reports from the U.S. Census Bureau, between 2000 and early 2020, the national rate of homeownership has fluctuated from approximately 63% to 69% and home equity accounted for more than 34% of household net worth in 2015 and 2016 (Eggleston, Jonathan, and R. Munk, "Net Worth of Households: 2016," U.S. Census Bureau, 2019). Although homeownership rates in New York state (NYS) (50.9% in 1Q 2018) and New York City (NYC) (33%) lag the national average, real estate remains an important investment for many individuals, even during the current pandemic. As such, its value presents several estate planning and wealth transfer considerations surrounding a client's home or other residence that legal advisors must take into account.

Estate and Gift Tax

Minimizing or deferring estate tax is top-of-mind for most individuals. As such, advisors should anticipate the impact of federal and/or NYS estate taxes on real property owners.

In 2020, U.S. taxpayers may transfer up to $11.58 million, either during lifetime or at death, which is free from federal estate, gift and generation-skipping transfer tax. These increased exemptions were enacted in 2017 as part of the Act known as the Tax Cuts and Jobs Act (TCJA) that temporarily doubled the base exclusion of $5 million under prior law to $10 million indexed for inflation (P.L. 115-97). Estates exceeding the federal exemption amount may be subject to federal estate tax at rates of up to 40%. In 2020, NYS residents and non-residents who own NYS-situs real property or tangible personal property whose estates exceed the NYS basic exclusion amount of $5.85 million ($5 million indexed for inflation) may also be subject to a separate NYS estate tax (NYS Tax Law §§952 (NYS residents) and 954 (non-residents)).