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If you have a Revocable Living Trust, transferring real estate you own into the Trust can have many advantages.
When clients have a Revocable Living Trust (RLT), their home is one of the most critical assets to transfer. Here are some reasons you should consider moving your home or other property into a Trust:
1. Any real estate owned by a Trust avoids Probate.
2. You can clarify who you want to receive your house upon your death.
3. When you die, your heirs receive a “step-up in tax basis” on your real estate.
4. In Missouri, any real estate owned by a Trust typically maintains its “Tenancy by the Entireties” status if you are a married couple.
5. You can sell or mortgage real estate in an RLT as if you owned it personally.
6. You can typically transfer commercial real estate into your Trust by transferring your ownership interest in your business entity. Thus, keeping business assets out of Probate, as well.
Key Concepts
Probate: A court-administered process that (1) itemizes the Decedent’s property and assets, (2) orders payment of any debts or taxes, and (3) distributes remaining property and assets as directed by the Decedent’s Will (or, in the absence of a valid Will, by Missouri Intestate Succession laws). This process is typically costly and takes several months (often years) to complete.
Step-up in Tax Basis: Tax Basis is the value used to determine gain or loss when you sell an asset. When real estate transfers via inheritance, the recipient gets a “step-up” in tax basis. A step-up in tax basis means, for capital gains tax purposes, your tax basis equals the property’s value the day you receive it. By contrast, if you were gifted the same real estate while the giver was alive, you would not receive a step-up in tax basis. Instead, your tax basis would be whatever the purchaser paid for it.
Tenancy by the Entireties: A form of property ownership that allows married couples to co-own the undivided interest of a piece of real estate. This form of ownership offers unique liability protections.
A home owned as Tenancy by the Entireties avoids liability resulting from the actions of one spouse. For example, suppose spouse #1 is sued, loses the lawsuit, and then owes a large sum of money–the house is not an asset a creditor could pursue. The house will only be exposed to a creditor if both spouse #1 and spouse #2 are liable.