The Benefits of Placing Your Home in a Trust

Why Place Your Home in a Trust?
Placing your home in a trust can be a strategic move to protect your assets, manage your estate efficiently, and offer financial advantages to your heirs. Trusts provide a structured way to manage assets both during your lifetime and after your passing.

Types of Trust For Your Home

Revocable Trust
A revocable trust allows you to retain control over your home during your lifetime. You can modify or dissolve the trust at any time, making it a flexible estate planning tool. When you pass away, the home is distributed according to the terms of your trust.

Irrevocable Trust
Transferring your home into an irrevocable trust may offer protection from creditors and can help with Medicaid planning. Your home and other assets can be transferred into an irrevocable trust to reduce your countable assets for Medicaid eligibility purposes.

The Stepped Up Basis
One of the most significant tax benefits of placing your home in a trust is the step-up in basis your beneficiaries will receive. This tax provision can potentially reduce the capital gains taxes to your heirs might owe when they sell the property.
 

What is a Step-Up in Basis?
When you pass away, the value of your home is "stepped up" to its fair market value at the time of your death. This means that if your beneficiaries decide to sell the property, they would only pay capital gains tax on any appreciation above that new stepped-up basis, rather than on the entire amount of the original purchase price.

For Example: Say that 20 years ago, Mom purchased a home for $500,000. If she passes away today, and the home’s current fair market value is $750,000, her children would inherit the property with a "stepped-up" basis of $750,000—the value at the time of her death. This means the children would not owe any capital gains tax on the $250,000 increase in value ($750,000 - $500,000) that occurred during Mom's ownership. If they decide to sell the home for $750,000, there would be no taxable capital gain since the sale price matches the stepped-up basis.

To learn more about transferring your home in a trust and the benefits it offers, contact MLG and schedule your complimentary consultation.