Living Trust Rentals

Q. My elderly parents own rental property that is in a living trust. Is there a tax advantage for them to sell the property now, verses selling after one or both pass away?

A. If your parents sell their rental property now, their capital gain will be taxable. However, if the property is not sold until after one dies, the survivor will get a fully or partially stepped-up basis to market value that would reduce potential capital gain tax. If the property is sold after both parents die, the heirs will receive a new basis stepped-up to market value on the date of the surviving parent’s date of death. The fact that the title is in a living trust has no effect on the tax situation. A living trust is just a title holding method, primarily to avoid probate costs and delays, as well as to provide property management if one or both of your parents become incompetent, such as Alzheimer’s disease. As always you should consult your attorney and tax advisers for exact details.

Posted by Donald Urschalitz P.A. at July 22, 2004 08:13 PM