Step Up Basis in Revocable Trusts

A revocable living trust transfers your assets upon aging out to the beneficiaries, free of probate. Probate can be expensive and time consuming. The true benefit of the living trust is the step up basis the beneficiary gains.

A Step Up Basis is that a beneficiary inherits the property at the market value of the property at the time of inheritance. If the property is gifted prior to aging out, then there is not a step up basis. This would then have a capital gains tax on the appreciation, which at 15% could be thousands of dollars. By way of example, if a home were purchased twenty years ago for $150,000. At time of transfer through the Living Trust, the property could be valued at $450,000. Well, there would not be a capital gains tax. However, if the property were gifted (I often see this as a Quit Claim Deed where the family is trying to do their own Estate Planning), then the tax owed would be $45,000 (300,000 appreciation at 15% capital gains rate). That is a huge surprise for the family.

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North Miami Beach, Florida