Q: Your recent article about trusts was very informative. My parents have asked me to be the executor or administrator of their revocable trust.
I’m concerned about the tax consequences for the beneficiaries. I plan to consult professional help when the time comes, but I have two questions. First, does their house have to be re-titled in the name of the trust? And, will the property receive the step-up in basis after they die if it is in the name of the trust?
A: Think about a trust as a big brown bag. If you don’t put anything into the bag, it stays empty.
If you want to make your trust work the way it is designed to work, you must re-title the assets that go into it. So, your parent’s revocable trust will be empty until you re-title their assets, like their primary residence, any second home or vacation property, a boat or even stocks and bonds.
When your parents die, the assets in the trust should receive a step-up in basis to the value on the date of death. So a house that was worth $30,000 when your parents bought it 40 years ago might be worth $400,000 on the day they die. The stepped-up basis would be included in the total amount of the estate.
Your parents will be allowed to pass down an estate of at least $1.750 million each tax free, and that number is rising. If they died in 2009, current tax law says that they could pass down an unlimited amount of assets tax free. Since most people don’t know what day they’re going to die, a bit of estate planning can help survivors cope with at least part of the loss.
Having the assets in a trust will speed up the time it takes the estate to be probated. The assets in the trust should pass almost automatically to the designated beneficiaries.
Your parents sound like they know what they’re doing. If you have any questions, you should call the estate attorney who set up the trust for them.
July 21. 2005