“Thought for the Day” #951 – by Stephen R. Elville, J.D., LL.M.

April 19, 2017

Yesterday we discussed one of the most frequently asked questions in estate planning and elder law: when leaving a home to children, is it better to avoid probate by using joint ownership or a revocable living trust? Having discussed the pros and cons of joint ownership to achieve that purpose, today we’ll briefly discuss the revocable living trust method. If you retitle your property in a revocable living trust (for your benefit), naming your child as beneficiary after your death, the property will go to your child without going through probate (the distribution of the property to your child will occur without the necessity of the probate process). This is the same result as with joint ownership – probate avoidance. However, a revocable living trust may be further beneficial because it can provide you the right to live in the property while taking into account future changes in circumstances, such as your child passing away before you. Another benefit of a revocable living trust relates to capital gains taxes. The tax basis of property in a revocable living trust is stepped up when you die to the fair market date of death value of the property, which means that the tax basis would be the current value of the property at your death. This means that if your child sells the property soon after inheriting it from you, the capital gains taxes will likely be very low (if any whatsoever). The joint ownership method is much less desirable for capital gains taxes, as discussed in yesterday’s blog. In general, a revocable living trust is more flexible and provides more options for you and your child than joint ownership (only a few such options have been described here). However, each family and each set of circumstances is different. The use of joint ownership versus a revocable living trust is ultimately a legal counseling issue.