It’s amazing when someone from an older generation chooses to give their home to a family member. We do a little “Ayyy! I got a house!” dance in celebration. Until that tax bill comes and the government wants their cut.
There’s a way around this, though.
Inherited properties have this little thing called the capital gains tax. Whoever inherits has to pay tax on any value gained over the life of ownership. We want to build Black generational wealth, but this could end up causing a loss of wealth instead of a gain.
How do we use the system to get around it? Place the home in a trust. We can use them to our advantage. Placing property in trust with the desired inheritor as the beneficiary means they won’t have to pay taxes on any additional appreciation.
This process, known as a step up in basis, is one of the best ways to create generational wealth - which is why this information has been gatekept for so long. Generational wealth is something we need and aspire to in the Black community. But it needs to be obtained in a way that sets the next generation up for added success and wealth.