The Importance Of Titling In The "A" Trust

GIMME A TAX BREAK

THE IMPORTANCE OF TITLING THE PERSONAL RESIDENCE IN THE “A” TRUST

As both a CPA and a Certified Financial Planner, I try to show clients the importance of planning the consequences of their actions when it comes to allocating assets between a decedent’s trust and the survivor’s trust.

I have previously mentioned to you the importance of having the surviving spouse take title to the personal home in his or her trust rather than allocating it, or some portion of it, to the decedent’s trust. I realize there might be some cases, with unusual circumstances, where the personal home might be allocated to the decedent’s trust. However, you need to realize when that happens you are eliminating the future opportunity for the surviving spouse to use his or her $250,000 capital gain exclusion if and when they sell the home.

This past week I encountered a case where the surviving spouse was selling her home to enter a retirement community. We were not providing services to her and her husband at the time of his death. I don’t know why, but the advisors to the widow at the time the estate was being settled had the home placed into the “B” Trust of the decedent.

Therefore, because the home is in the “B” Trust rather than the widow’s “A” Trust, all of the appreciation of $280,000 is going to be taxed rather than $30,000 which would have occurred if the house were in her trust.

That means my client will have an approximate $20,000 California tax and a $42,000 Federal tax due from the “B” Trust upon the sale of the home, rather than $2,400 California tax and $4,500 in federal taxes. In my opinion, that is $55,000 of added tax which not only could have been but should have been eliminated. I can’t over emphasize the importance of good estate and financial planning.

07/12/2007