How to Make the IRS Unhappy and Avoid Probate

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    How to Make the IRS Unhappy and Avoid Probate

    A client recently contacted us about the future inheritance of a house owned by her significant other, who had a very limited life expectancy. They knew enough to be dangerous.

    To avoid probate, the significant other was signing a deed transferring the house to her. He explained that accomplished two goals – it put the house in her name and avoided probate. At all costs he did not want her to have to deal with probate which would delay her obtaining title to the house. The plan was to sell the house at his death.

    If they had done this transfer the IRS would have been very happy because her basis in the house would have been his cost which was significantly below fair market value. Upon her sale of the house, income taxes would be owed.

    In lieu of using a deed transferring the house to her, we recommended that an enhanced life estate deed be used. This avoids probate because upon death, the simple recording of a death certificate puts the title in her name without probate. Furthermore, the transfer does not take place until death so her basis in the property is stepped up to fair market value. Accordingly, upon the sale of the house her basis is much higher and no gain would be recognized and no tax due.

    Hence, a very unhappy IRS!

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    Our experienced Estate Planning & Probate Attorneys are available to answer any questions you might have. 

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