Joint Purchase Trust - A Smart Way to Buy a Home
If you are planning to buy a new home, you might want to know about Joint Purchase Trusts. These trusts can provide significant estate tax savings.
One of my clients named John asked me whether he or his children should buy a vacation home that will cost $900,000. I recommended that John and his children establish a Joint Purchase Trust.
John will contribute $630,000 (70%) to the Trust and his children will contribute the remaining $270,000 (30%). John’s children have the ability to fund this investment due to prior gifts they have received from John and his parents.
John will have the use of the home for his lifetime and will pay all taxes, insurance and maintenance costs. With John’s permission, his children will also be able to use the home.
John can sell the home if he chooses. If the home is sold, the Trust would either purchase another home or other investments.
Upon John’s death, the trust will terminate, and the home will belong to his children. Nothing will be included in John’s estate for estate tax purposes.
Neither the $630,000 paid by John nor the appreciation of the home will ever be subject to estate or gift tax. This will be a substantial estate tax savings as compared to John buying the home in his name.
A Joint Purchase Trust can also be established by married couples. The husband and wife would retain the right to live in the home until the death of the survivor.
I do not recommend these trusts if you plan to borrow money to buy the home or to use the home as collateral for a home equity line of credit.
