As we get older, we must protect our assets and specifically designate them, so that our final wishes are met. When it comes to property, like a home, the two most common options are joint tenancy and a living trust. As leaders in Orange County trust and estate planning legal services, the attorneys at Heritage Law, LLP want to provide you with the best information to make an informed decision.
When a couple purchases a home, typically they are co-owners. This type of ownership creates a right of survivorship, which means that when one owner dies, the other owner absorbs the deceased owner’s interest.
For example, if a couple owns a house as joint tenants, both have ownership of the property. If one of those owners dies, the remaining owner retains sole ownership of the home.
Another option is a living trust or “Inter Vivos” where your assets are placed into a trust while you are living. Upon your death, your assets are distributed to one or more beneficiaries. There are two types of trusts:
By configuring a revocable living trust with an estate planning attorney, you transfer your assets into the ownership of the trust. You maintain control of the assets as the trustee. Like a will, you can change or revoke the trust at any time. When you die, your assets bypass the probate process and become the property of your beneficiaries.
If you want to give away assets before you die, you can use an irrevocable trust. This is not a process you can undo, so it should be done wisely. People typically gifting away assets have an abundance of wealth. By selecting an irrevocable trust, you and the beneficiary avoiding paying estate taxes on the property.
Making the Right Decision
When it comes to capital gains taxes, you may be better off selecting a trust. Here’s why: If you purchased your home for $500k and it is worth $1.5m at the time of the joint tenancy transfer, the step up in basis is only $500k (1/2 of the $1m increase). You are now liable for capital gains tax on the remaining $500k increase when you sell. Most people only realize this when they downsize or move into a home that’s more suited to their new life.
The best option is to consult with an informed estate planning law firm. Heritage Law, LLP takes an efficient approach to probate matters to save clients time, money and stress with respect to the administration of trusts and estates. Heritage Law, LLP offers dependable and cost-effective counsel for trustees, successor trustees, corporate trustees, and professional fiduciaries. California law imposes numerous duties on trustees. Administration of trust assets is not automatic. There are tasks that require immediate attention upon the death of the grantor, and there are ongoing responsibilities required of the trustee throughout the period during which time the trust is in existence. The difficulty or ease of administrating a trust depends on many factors such as the type of assets held by trust, the dispositive terms and the sophistication of the trustee.
If you’d like to learn more about estate and trust planning, contact Aliso Viejo attorneys, Heritage Law, LLP, today.