Q3 2026
OUR GUIDE TO EVERY MILEPOST, JUNCTION, AND LANDMARK ON YOUR ROAD TO RETIREMENT
THIS ISSUEWhat's Around the Bend: |
250 years ago, Thomas Jefferson wrote that all people have certain unalienable rights, including life, liberty, and the pursuit of happiness.
While those words are as inspiring today as they were then, the United States Constitution, on the other hand, words it a little differently: That no person may be deprived of life, liberty, or property without due process of law.
Of course, property is not only a natural right, but an important consideration in retirement. It impacts your daily living, your income, your expenses, your estate planning, and more.
That’s why the next two issues of The Retirement Road will focus on several property-related concerns and decisions. Some of these will apply to you and some may not, but all are worth thinking about.
In this issue, we will look at owning property abroad, the importance of proper titling, and an estate planning tool that all property owners should be aware of.
In the next issue, we will focus more on property as both a source of income and expense.
Have a great quarter!
Living Abroad
QUOTES WE'VE BEEN THINKING ABOUT“The state of nature has a law of nature to govern it, which obliges every one: and reason, which is that law, teaches all mankind that being all equal and independent, no one ought to harm another in his life, health, liberty, or possessions.” —John Locke, The Two Treatises of Civil Government |
Maybe it’s sipping wine in the City of Light or eating sushi in Tokyo. Maybe it’s inhaling the sweet fragrance of a springtime garden in England or feeling the warmth on your face outside a villa in Tuscany. Wherever it is, if you’ve traveled outside the country much in your life, you probably have a favorite place to visit.
A place that makes you think, “I could live here.”
It’s not the most common retirement goal around, but it’s one that many people contemplate at some point or another: The prospect of living abroad.
If this ever becomes a retirement goal of yours (even if it’s just to own property abroad that you spend a few months out of the year in), there are a few things to know:
💸 If you spend 183 days or more in a country, you may be taxed as a resident. But many people don’t know that, depending on what you do in a foreign country (Based on a ‘Center of Vital Interests’ rule), you could be subject to full taxation no matter how long you are there.
💻 If you are a business owner or executive, doing business while overseas could inadvertently create a “permanent establishment” for your company in that country. That would make it liable for taxation there.
🏠 If you want to make your oversees dream home become your permanent home, the U.S. may treat your global assets as if they were immediately sold at fair market value and you would be subject to any capital gains on unrealized gains.
💰 You will need to disclose any accounts held overseas that exceed $10,000 (at any point) on your tax filing.
👨👩👦 Some countries have “forced heirship” laws. They will force specific percentages of your assets to your children or spouse, regardless of what’s stated in your U.S.-based will or trust.
Living abroad in retirement is certainly not something that can be decided on a whim. It involves managing taxation, maintaining business interests and income streams, and navigating complex legal systems.
But by planning carefully and proactively, it can also be a wonderful experience that makes retirement everything you dreamed it would be.
Proper Property Titling
FUN FINANCIAL FACTSQ3 is home to “Talk Like a Pirate Day.” Did you know that early, pre-Independence Americans often used pirate money? Okay, not really. But they did frequently use “pieces of eight,” a type of currency that, these days, is mostly associated with pirates. Metal coinage was relatively rare in the American colonies, so for much of the 17th and 18th centuries, Americans used Spanish coins gained from trade with the West Indies. Due to its design and silver content, the Spanish dollar was one of the most trusted coins a colonist could use. To make change, this dollar would be cut into eight pieces, or “bits.” Hence both “pieces of eight” and the expression “two bits” which you can still hear today! |
For many, part of the “American Dream” is owning real property. In retirement, that dream can often become a reality. Whether it’s finally paying off the house you’ve owned for decades, purchasing a second “vacation” home, building a family cabin, becoming a landlord, or helping a child purchase a house, property can be a source of both pride and income.
Prior to completing any property purchase, though, you will likely be asked by a real estate agent, and later by the title company handling the sale, how title is to be held.
Proper titling is important for a variety of reasons. Understanding the difference between sole proprietorship, joint tenancy, tenants-in-common, and community property impacts creditor protection, estate planning, and family financial harmony.
Sole ownership means just that: the title is vested in one person or entity. The buyer will sign as a single individual (having never been married) or an unmarried individual (widowed or divorced,) or a married individual acquiring an interest as sole and separate property with the other spouse relinquishing all right, title or interest.
Tenancy-in-common allows any number of people to hold title together with each having a divided interest, equal or unequal. This form of ownership is common among business owners, parents and children, and unmarried domestic partners. Since one co-tenant cannot act on behalf of another, and they are not liable for the acts or omissions of other co-tenants, creditors can assert a claim against only a portion of the property evidenced by a co-tenant’s interest.
For estate planning purposes, a co-tenant has all the rights of a sole owner for their portion of the property, including the power of appointment to give their interest away while alive or leave an interest by will at death. (For gift or estate tax purposes, keep in mind though that the value of a co-tenant interest may be discounted if the new co-tenant does not enjoy the total ownership of the property.)
Joint-tenancy differs from tenants-in-common in that the property ownership interests, which can be owned by any number of people, cannot be divided. There is only one title to the property, and all owners have equal rights of possession. Upon the death of an owner, that person’s ownership interest ends and cannot be willed or given away. The survivor, or survivors, retain all ownership interests.
This brings us to a common mistake made by retirees and pre-retirees, which is to put children on property as joint tenants. The thinking is that by doing so, they can pass on their property without going through probate. This can be true; however, it can also create a taxable event in that the transfer of a joint-tenant interest is considered a gift requiring the filing of a gift tax return. (This also exposes the property to creditor claims of any joint tenant.)
Since a joint-tenancy arrangement passes the property to the surviving joint tenant, the decedent tenant has no power of appointment over that property at death. Parents holding property in joint-tenancy have effectively disinherited their children since the first-to-die parent cannot appoint his/her interest in the property to an heir by means of a will.
Finally, we have community property. There are currently nine community property states in the U.S.: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
These states treat property held and titled by married couples as community property similar to joint tenancy with two very important exceptions. At the death of the first spouse, the decedent has full power of appointment, or the ability to give their interest to whomever they please. Most commonly, the property will be left to the surviving spouse to use for the rest of their life, then be passed on to the children. Finally, at death, the property receives a full stepped-up cost basis, enabling the surviving spouse to sell the property without a capital gains tax.
As you can see, the question of titling, while not necessarily complex, is certainly not one that comes with a one-size-fits-all answer. So, if you ever think about purchasing property in retirement and aren’t sure which form of titling is right for you and your family, please let us know! We would be happy to discuss your options with you.
Passing the House Along Through a QPRT
In the last article, we mentioned how many retirees often intend on leaving property to their children. It’s an extremely common goal…but many people don’t know about a powerful tool that can help. It’s called a Qualified Personal Residence Trust, or QPRT.
A QPRT allows the older generation to make a future interest gift to the younger generation of a primary or secondary home at a discounted value for gift and estate tax purposes. Since it is a gift of a future interest, the grantors (Mom and Dad), may retain the right to use the property for a term of years.
The mechanics of a QPRT are fairly straightforward. The grantor, or maker, of the trust is the owner of the home. The children are typically the beneficiaries of the trust.
The grantor gives the property to the trust. However, the grantor reserves the right to use the property for a set number of years he determines. The right to use and enjoy the property is assigned a value as determined by current IRS valuation tables. This value is subtracted from the current value of the property, and the remainder is considered to be the taxable transfer.
At the conclusion of the term, the property is then owned outright by the trust. It can remain there or be distributed to the beneficiaries.
The beneficiaries may sell the property, use it themselves, or even lease it back to Mom and Dad, provided the lease is at fair market value. If they elect to sell the property, their tax basis is the tax basis of the grantor plus any gift taxes paid.
The tax advantages of the QPRT stem from the discounting that occurs when the property is originally transferred and from the fact that future appreciation in the property is transferred tax-free to the next generation.
For example, let’s assume that Mom and Dad transfer their Lake Tahoe vacation home, valued at $1 million, to a QPRT that names two children as beneficiaries. They retain the right to use the vacation home for 15 years. Their retained interest is valued at $750,000. The discounted value of the gift is calculated to be $250,000. So, they file a gift tax return and claim the use of $250,000 of their credit exemption.
Over the next 15 years the property doubles in value. When the term finishes, the kids get the property and decide to sell it. If Mom and Dad paid $500,000 for the home, they would have a taxable gain of $1.5 million. The federal capital gains tax would be 20% of the gain, or $300,000.
On the other hand, had the parents died and the $2 million home been taxed in their estate, the tax could have been as high as 40%, or $800,000.
A QPRT is only right in very specific circumstances. It’s certainly not a universal estate planning tool. But if you have property you plan to continue to use but would like to give to the next generation someday, it’s certainly a tool worth considering!
Minich MacGregor Wealth Management
21 Congress Street, Suite 203
Saratoga Springs, NY 12866
(518) 499-4565
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