Q: Should I give my house to my children before I die in order to avoid Probate?
A: NO! Many people think that this is an easy solution to avoid forming a Trust. However, it is ripe with problems.
1) GIFT TAX- The gift to your children is a taxable event and you must file a Form 709 Gift Tax Return. Any tax penalty associated with the transfer is owed by the transferor, not the recipient of the property.
2) CAPITAL GAINS TAX - Your children's tax basis in the property would be your basis in the property. This can have horrible consequences should your children eventually choose to sell the property. However, if they were to inherit the property upon your death, their basis in the property would be the
Q: Doesn’t holding real property in “joint tenancy” avoid Probate?
A: Yes, but Probate is only avoided on the death of the first spouse. When the second spouse dies the real property must go through Probate. If the house were placed into a trust while both spouses were alive there would be no need for a Probate to be opened at either death. Additionally, there are negative capital gains tax consequences should the surviving spouse choose to sell the house and it is held in joint tenancy.
Q: Does a Trust provide asset protection from creditors?
A: A Revocable Living Trust does not provide asset protection from the creditors of the Grantor(s). There are other types of Trusts that can do this. However, a Revocable Living Trust can protect assets from the claims of your beneficiaries' creditors.
Q: I have a trust that was drafted 10 years ago or more. Do I need a new one?
A: Most likely yes. Due to the changes in tax laws that have occurred over the past 10 years it is very likely that your trust is outdated and doesn’t properly take these changes into account. For example, in 1999 the per person estate tax exclusion amount was $650,000. Today this amount is $5,450,000. Your estate plan was likely drafted based upon the size of your estate and the estate tax exclusion amount at that time.
away, the trust must obtain its own EIN, and it must file its own federal and state income tax returns. The federal income tax return for trusts is filed on Form 1041 and the California income tax return for trusts is Form 541.
Q: Are there any income tax advantages of having a Trust?
A: No. A Revocable Living Trust is tax neutral and does not generate any tax advantages or consequences as long as the person who put the assets into the trust (commonly referred to as the Grantor, Trustor, or Settlor) is the primary beneficiary of the trust and retains the right to amend the trust. Satisfying these requirements makes the Trust a Grantor Trust for tax purposes and all income and losses are reported on the Grantor's personal tax returns. However, once the Grantor passes
Because the estate tax exclusion amount has changed significantly over time, and because married people can now take advantage of the "Portability" of the deceased spouse's unused estate tax exclusion amount, your trust likely needs to be updated.
We would be happy to review your existing estate plan documents and provide you with our opinion of the status of your existing estate plan.
fair market value at the time of your death. This could eliminate any capital gains taxes owed when they choose to sell the property.
3) CREDITORS - Placing your children on title to your house will make it accessible to the claims of your children's creditors.
Q: I recently moved from another state. Can I still use my old Trust?
A: No. Probate and Trust laws vary significantly between states. although your Trust may have a clause saying that the trust can use the governing laws of the state where you currently live, this can cause confusion in the Trust provisions. The most prudent thing to do is to consider it a moving expense and have the Trust redrafted under California law.
Video coming soon!
Feel free to call us if you have additional questions.
Q: Why do I need to hire a lawyer if I can prepare my Trust online?
A: An estate planning attorney is aware of the current tax laws and potential changes in these laws. Every person’s situation is unique and their estate plan should be drafted to account for the changing tax laws. Therefore, we do not believe in taking a one-size-fits-all approach to estate planning. Rather every Trust is custom drafted for our clients to accommodate their specific needs and desires. Additionally, having an estate planning attorney prepare your Trust will provide a continuity of advice and someone for spouses and beneficiaries to turn to for guidance during the time of grief and turmoil following the death of a loved one.
The tax consequences and potential risks generated by giving your house to your children substantially outweigh the expense of a properly prepared Trust.
Click HERE for more information concerning joint ownership of property between generations.