Ready
Thinks s/he gets paid by the post
DH and I met with our attorney to review our will/trust/DPA/AHCD. In reviewing our current documents, he advised making a change which seemed a bit odd to me, so I'm hoping someone can let me know if it sounds right.
We currently own our home in two trusts as 50/50 equal owners. The deed was updated to reflect a 50/50 ownership in each trust about a year ago. At the time, we were not married, so we had the separate trusts.
We got married this year, and now the attorney is advising we combine the two trusts into one a retitle the home to be 100% owned by one trust to which we are both co-owners. He is telling us to do this so that if one of us dies, the entire value of the home would pass to the survivor with a stepped up basis.
We paid $1M for the home, and it is now worth $3M. We know that even with the $500K exemption, we would be looking at capital gains taxes on $1.5M if we sell. But he is suggesting that if we continue to own the home until one of us dies, the survivor would essentially owe zero capital gains taxes on the home because we would inherit it at the current market value of $3M. This would essentially allow us to avoid $400K in federal and CA state taxes. It seems to good to be true.
Am I missing something, or is this a legitimate way to avoid paying capital gains taxes on the home in the event one of us dies while we own the home?
We currently own our home in two trusts as 50/50 equal owners. The deed was updated to reflect a 50/50 ownership in each trust about a year ago. At the time, we were not married, so we had the separate trusts.
We got married this year, and now the attorney is advising we combine the two trusts into one a retitle the home to be 100% owned by one trust to which we are both co-owners. He is telling us to do this so that if one of us dies, the entire value of the home would pass to the survivor with a stepped up basis.
We paid $1M for the home, and it is now worth $3M. We know that even with the $500K exemption, we would be looking at capital gains taxes on $1.5M if we sell. But he is suggesting that if we continue to own the home until one of us dies, the survivor would essentially owe zero capital gains taxes on the home because we would inherit it at the current market value of $3M. This would essentially allow us to avoid $400K in federal and CA state taxes. It seems to good to be true.
Am I missing something, or is this a legitimate way to avoid paying capital gains taxes on the home in the event one of us dies while we own the home?