Real estate planning often involves creating revocable or irrevocable trusts. Each of these trusts starts with an intervivos trust – a trust sets up that goes into effect while you’re still alive. It is therefore to decide whether the trust is revocable intervivos, which means that it is possible to change your mind, or irrevocable, that is, sorry, what is done is done.
Irrevocable trusts are the easier of the two to understand. After placing property in an irrevocable trust, ownership cannot be recovered. For all intents and purposes, that the property now belongs to the trust, not to you!
With a revocable trust, however, you can place properties in trust and at some point in the future, cancel the transfer by removing the property and closing the trust.
Very often, if you die or become incompetent, the provisions of a revocable trust call for trust to become an irrevocable trust. For example, a revocable burial trust can be terminated at any time, usually before death or incompetence. But if the burial trust still exists when you die or become incapacitated, the trust becomes irrevocable and the money is used for burial expenses.
It is very likely that the gift tax consequences when establishing an irrevocable trust intervivos, so make sure that the accountant is “looped” together with your attorney. In addition, some transfers within certain periods of time before your death may be included in your property as “death contemplation gifts” under both state and federal statutes. So watch out for possible death tax consequences!
How revocable and irrevocable trusts affect property taxes
The most significant distinctions between revocable and irrevocable trusts are the real estate tax considerations. Property that fits into an irrevocable trust is no longer considered part of your property, which means that property is generally not included in the value of your property when it comes to determining whether you owe death taxes and, if so, how much.
However, it is still property that is part of a revocable trust, and therefore that property is still subject to death taxes. If you can change your mind about trust and recover ownership from trust at any time while you are still alive, the property is truly yours and should be considered part of your property.
So if you only get a real estate tax break, with an irrevocable trust, why would anyone want to use a revocable trust without the real estate tax break? Saving tax on real estate is just one of the reasons that you can consider it as a trust in your planning. If the value of your property is nowhere near the federal property tax exemption, then you really don’t need to be worried about the federal savings tax-summer tactics.
Your motivation for creating a trust may have more to do with property protection or help a charity, but you might also want a safety valve that allows you to pull out a trust’s money if circumstances change. some way.
Make sure to work with your accountant to understand any and all tax implications – gift, federal property, and state succession or ownership – for transfers of ownership of both irrevocable and revocable trusts. He or she can help set the right provisions and avoid unpleasant tax surprises from the government because of some provisions of the tax code he knew nothing about.
A closer look at the revocable trusts
Real estate planning consultants often refer to revocable trusts, especially living trusts, as the “best way to totally avoid homologation.” Put all your assets in revocable trust and you can have control over that property, the step goes, and because none of your property is now in your estate estate (that is, it’s all held in trust) your property doesn’t have to go through the succession process because your estate is “empty!” The step goes on: Avoiding inheritance costs, avoiding inheritance costs, putting out the lack of privacy, and bypassing other disadvantages of the succession process.
Not so fast! True, inheritance costs can be avoided, but do you really think that creating and maintaining trusts is free? There’s no way! The costs of establishing a revocable trust vary, depending on attorney fees and other costs, and they are willing to pay to have your trust managed.
You also need to make sure that everything you own is kept in the form of trust. If you fail to understand any part of your property to your trust (s), then you have a estate estate that is subject to the estate process. So every time you buy a new home, open a new brokerage account, or make changes to the inventory of your property, you need to make sure to transfer the property to your confidence (s).
Remember that inheritance isn’t always bad. The Homologation Court ensures that the property in your estate is disposed of correctly, without secret maneuvers, and supervises your estate. With the supervising succession court, part or all of your property being held in trust or other nonprobate form (tenancy combined with survival rights, for example) may be in for trouble if someone close to you in a position of authority is not ethical. All beneficiary problems can eventually get resolved, but most likely due to protracted, expensive legal battles.