This is such a common question from clients, I really need to add to my Frequently Asked Question’s page. There are many tax issues involved in transferring title to real property: transfer tax, capital gains tax, property tax, etc… Whether in California or Hawai’i, changing title of your home from your name to your revocable living Trust will not implicate a taxable event. There may be tax consequences if you create an irrevocable Trust, like a Qualified Personal Residency Trust (QPRT), but I will blog more on that at a later date.
Blog followers may have seen my post of last year on California’s Prop 19, and been weighing their options as to whether they want to retitle their homes, typically out of a trust and into the names of children by way of a gift deed. If you haven’t done this already, it may be too late, as many firms have set a cut-off due to the time involved in doing this. But you may not have wanted to do that anyway. Why?
Well, it’s all a balance of tax options and how those will affect your long-term plans. Short version: If your children are planning on keeping the home and using as a primary residence or rental property for many years, it may make sense. If not, probably best to save and allow them to inherit as you may already have planned. Making a gift of California real property before February 15th may allow you to transfer your property tax basis in the home to your children, but it the property is transferred as a gift, instead of an inheritance, they will not receive the step-up basis in capital gains taxes. If your heirs are planning on keeping the home for a long period of time after you pass, it makes the most sense as the savings from an increase in property taxes over the years may outweigh the increase in capital gains taxes that need to be paid when the home is eventually sold. If, however, you heir plans to sell the home when you pass, gifting now may not make sense. There is no advantage from property tax savings, and your heirs will lose the advantage of the step-up basis they could have received.
Takeaway
I know, it’s complicated. Bottom line is if you live in California or Hawaii, likely a significant portion of your estate will be in your home. Laws change. If you have an estate plan but have not revisited it with your attorney in 3-5 years, it’s a good idea to schedule a checkup to make sure it’s still written to serve your legacy goals. If you don’t have an estate plan yet, and you are reading this, call today for a free consultation or visit my website for dozens of free blog articles and answers to frequently asked questions. Whether Legacy or Business Planning, Contact CASHMAN LAW today to get the Plan You Deserve.™
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