Question: You frequently mention the benefits of recording a beneficiary deed now for simple inheritance of a home or other real estate. I know that a beneficiary deed is not effective until death and can be revoked at any time prior to death. For example, if after recording a beneficiary deed I get angry with my child, I can record a notice of revocation. I still, however, have one question. If I record a beneficiary deed of my Sun City home to my daughter, and she inherits my home through the beneficiary deed after I die, will she have to pay estate tax on the value of the home?
Answer: No. Any estate tax owed on real or personal property inherited after death is owed by the estate of the deceased person, not by the person such as your daughter inheriting the real or personal property. There is currently an exemption of at least $5 million before any estate taxes are owed by the estate of the deceased. If you record a beneficiary deed to your daughter and, after your death, your daughter decides to sell the home, there would be capital gains tax owed on any increase in value between the time of your death and the time of the sale by your daughter. If your daughter had been living in the home as her principal residence, however, any capital gains tax on the sale of the home would be exempt up to $250,000 if she were a single taxpayer.