Tax Consequences: Gifting or Revocable Trust?

Creating a Minnesota Trust Can Reduce Tax Liability

How property is passed determines tax implications for the recipient.  Often, parents wanting to avoid probate and plan for long-term care costs, transfer the deed of their property into the name of their children, thus creating a “gift”.  However, this can inadvertently create a “tax bomb” for the child, whereby the tax basis is the basis at the time of purchase, rather than at the time of death.

Alternatively, creating a Trust, transfers the property to a beneficiary at the time of death. The tax basis of the property is the date of death and not the date of sale, therefore, reducing the incurred tax at the time of sale.  For example: If a home was purchased in  1970 for $50,000, then gifted to a child in 2010, and then later sold in 2015 for $250,000, the child will incur tax liability on $200,000 (the basis is the time of original purchase).   However, if the property is transferred via a Trust and the value at the time of death is $200,000, the child will only incur tax liability on the difference between the value at the time of death and the value at the time the child sells the property  So, if the child sold it in 2015 for $250,000, he or she would only assume tax liability on $50,000.

This is explained further in this article and interview.

Contact Keirnes Law today to discuss ways that you can reduce your own tax liability and plan for your future.






The following article and interview

Tags: estate planning, family law, law, taxes, trusts
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