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A revocable living trust can avoid probate and minimize taxes

The decision whether to have some or all of your estate pass by living revocable trusts under Texas law is one that should be made in consultation with an estate attorney or other qualified professional. Remember that each situation must be evaluated on its own facts. If avoiding probate is a goal that will benefit you and preserve your assets the best, then a revocable living trust should be included in the estate plan.

Sometimes what appears to be the quick and easy answer turns out to be a costly mistake. That is why professional planning assistance may be vitally helpful to many persons. For example, it may appear that one way to save considerable expenses is to put a widowed parent’s residential real estate in two names so that when the first person dies, the other will automatically take over without the expenses of post-death probate of the estate.

However, if a mother puts the house in her and her daughter’s name for the purpose of avoiding probate, it may result in a hefty capital gains tax being paid when the daughter goes to sell it. That’s because as an owner she’ll be saddled with mom’s original cost basis, which may be a substantially lower amount than its current value. If the mother paid $50,000, but daughter sells it for $150,000 after mother’s death, the daughter will have to pay a big capital gains tax on the $100,000 gained.

That could have been avoided by putting the property in a living trust while mom was alive. Upon her death, the property passes to the daughter directly as the beneficiary of the trust, but she inherits it at the current $150,000 value. This will result in no capital gains tax when she sells it for $150,000. It did not pass through the estate and was not subject to probate in a Texas state court, making the whole process streamlined and less expensive.

Source: The Spectrum, “Avoid probate the right way“, Scott Halvorsen, Sept. 22, 2014


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