Do I Need a Trust if I Just Own a Home?
If you own a home in California and it is worth at least $150,000, then you need to make sure to have a Living Trust. It does not matter if this is your only piece of property or if you have only moderate funds in your bank account. If your home is worth over $150,000 then it can go through probate after you pass if it is not included in your trust. A lot of people assume a trust is only necessary if you are extremely wealthy or own multiple pieces of property. But, when you think about estate planning, it is crucial that you do not make decisions based on your judgments of other people’s financial circumstances. You need to only be focused on your current situation and how to protect it. Too many people assume they are thinking too highly of themselves if they do estate planning without multiple big-ticket assets, but the truth is that a trust is necessary to protect your assets from going through probate, and more people than you think meet that minimum qualifying amount.
Can I Just Put My Kid’s Name on the House Instead?
Technically, you can just put your child’s name on the deed so that ownership is shared and naturally passed on instead of putting the house in a will, but doing this means you forego major tax benefits. For example, you would forego the full step-up in basis, which eliminates the capital gain on the house. In other words, let’s say you bought a house for $100,000 sixty years ago. That same house is now worth $180,000. If you sold the house while you were alive, you would have an $80,000 taxable gain. The original $100,000 price is your basis. However, if you die without selling the house, it will be valued at $180,000 for federal estate taxes. Whoever inherits the house with a trust at this point will not have to pay income tax on the house because the basis price is stepped-up to the current value of $180,000. In this situation, the basis becomes the same as the current value of the home, and your heirs benefit from it. The only way to avoid the capital gain on the house is to create a trust for this asset, even if it is your only one. Leaving a home for your heirs is an incredible gift, but it can be even more satisfying if you do it with a trust.
Your next step is to join our facebook group called “Parents Protecting Assets in California”. We provide valuable information on protecting assets from future in-laws and creditors!