Remaining Problem

[dyne]

An unresolved problem which has been discussed on this board is the fact that we
continue to see taxpayers who have had their elderly parent's residence transferred
to them. The only reason I have heard is this is done to avoid probate problems.
At a recent tax seminar it was suggested that a trust could be established to avoid probate.
My concern is about the BASIS of such residence when sold by the heir.
I understand that a Life Estate exists when the parents are allowed to live in the
residence until their death and in that case the heir gets a stepped-up basis.
What about when the residence is placed in a trust? When the residence
is simply transferred to a a son or daughter, (and was NOT a Life Estate) we may allow only the donor's basis since it was a gift. What is the BASIS for a residence placed in a trust? Comments?

[solomon]

Enhanced

Consider an Enhanced Life Estate Deed - also know as a Lady Bird Deed. I personally used this vehicle. Do a Google search on it. Certainly less expensive than a revocable trust. You can actually find one that was filed in Florida at Fairmark.com. For sure never use a quit claim deed or joint tenancy. It is valid in many states - would have to check your state property laws.

http://images.pascogov.com/img.aspx?root=deed&bp=6128157700&type=GIF

[Snaggletooth]

Vehicle

Dyne, Solomon's post was helpful and informative but it didn't answer your question about basis.

Only property which can be valued in the deceased estate is eligible for stepped-up basis. This having been said, not all attempts to convey property is honored by the IRS, although it might be honored for title purposes under various state laws.

I'm probably not the best person to describe what kind of vehicles are disallowed by IRS for purposes of estate, so I'm hoping someone else will post. In other words, I'm not going to answer your question either, but maybe set the stage for someone who will.

[dyne]

residence placed in a trust

Thank you Solomon and Snaggletooth:
I entered "residence in trust" in Google and found several sites entitled:
QPRT or Qualified Personal Residence Trusts. The consensus of these were that
such trusts are treated like a GIFT and if the residence later reverts to the heirs, their
basis would be the donor's basis. This is a definite DISADVANTAGE tax-wise. My
conclusion is that a trust which we are likely to encounter would be treated like a
simple gift of the residence. Only if the property was inherited without going through
a trust would the stepped-up basis be allowed. If anyone knows better, please advise.

[solomon]

Qprt

I believe the main purpose of a QPRT is to keep the property out of the estate. The Enhanced Life Estate Deed does give the heir a stepped-up basis as it is not a completed gift until the death of the grantor. In addition, during the grantor's life there is no recourse to the property conveyed by the grantor by any of the grantee's creditors. In effect this is sometimes called a defective (although not defective in that there is something wrong with it)life estate because the grantor retains complete control over the property even to the point of making a conveyance to someone else - among other controls. The property does go into the estate in this case which gives it the stepped-up basis.