Allocating The House On The First Spouse’s Death

by Bruce Givner on January 9, 2012

When looking for an expert Los Angeles post-mortem planning attorney, consider this situation: Mom and Dad, living in a community property state, have a typical “family” trust for their $12,000,000 estate.  This type of trust is also known as a “living” trust; an “inter vivos” trust; and as a “revocable” trust.  The basic idea is that on the first spouse’s death, the estate is divided into three “subtrusts.”  The surviving spouse’s half goes into the “Survivor’s Trust.”  The half of the estate belonging to the first spouse to die – the decedent – is allocated to two “subtrusts.”  One subtrust contains the deceased spouse’s unused lifetime transfer tax exclusion, currently $5,000,000.  That subtrust goes by many names: the “exclusion” trust; the “exemption” trust; the “bypass” trust; the “decedent’s” trust; the “B” trust; even the “family” trust.  The other subtrust contains the rest of the deceased spouse’s half of the estate, in this case $1,000,000.  That subtrust can also go by one of several names: the “marital” trust; the “QTIP” trust; and the “C” trust.

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In Los Angeles post-mortem planning, the biggest issue is often: to which subtrust should the personal residence be allocated?  The correct answer is not the same in each case.  However, there are four reasons for allocating the residence to the survivor’s trust.  First, that protects the surviving spouse’s ability to use the $250,000 exclusion in the event of a later sale.  IRC §121.  Second, that is an exempt transfer to the spouse for property tax purposes.  Third, that protects the homeowner’s exemption for property tax purposes.  And, finally, it allows the survivor to borrow on the home.

Los Angeles post-mortem planning has many complex tax issues.  Call us to discuss these important problems. Contact us today. (310) 207-8008

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