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    Category Archives: Stepped-Up Basis

    How You Hold Title To Your Home Really Matters

    You probably remember being asked how you want to take title to your home when you were finalizing the escrow process. Making sure you properly hold title to your home is critical to preserving favorable tax treatment and avoiding a long and expensive court-process when you pass away.

    Here are the options for taking title to your home, and the pros and cons for each option:

    Sole Ownership. This means only you would own the home and be on title, so that won’t work if you want to make sure the home automatically passes to someone else upon your death.

    Tenants in Common. This means you and another person would each own one-half of the home, and either of you could give your half away to someone else without the others permission. Plus, if one of you passes away, the other person would have to go through a long and expensive court process known as probate to get rights to the other half of the home.

    Joint Tenancy. This means you and another person would each own one-half of the home, and if one of you passes away, the other person automatically has all rights to the home. The downside is that owning the home this way can trigger negative tax consequences following a death, plus the home still ends up in probate after the survivor of you passes away.

    Community Property with Right of Survivorship. This means you and your spouse own the home together, and if one of you passes away the surviving spouse automatically has all rights to the home. Plus, you would have very favorable tax treatment following a death. The downside though is the home still ends up in probate after the second spouse passes away.

    Revocable Living Trust. Having Josh or Laura Meier prepare this legal document for you, or amend and restate your outdated trust, allows you to own your home in trust and have it automatically pass to a surviving spouse or whoever you choose. Tax treatment is favorable following your death, and the trust allows you to completely avoid a long and expensive court process known as probate, saving tens of thousands of dollars and avoiding unnecessary turmoil for your loved ones.

    Keep in mind that even if you originally took title in the same of your trust, sometimes it can inadvertently come out of trust during a refinance.

    If you would like a free copy of your deed for your California Property, call our friendly Meier Law Firm Client Services Director, Bonnie Johnson at (949) 718-0420 and mention this article. You must contact us before June 1, 2017 for this free service.

    Or, to set up a revocable living trust for your family, and hold title to your home the best way, call your Newport Beach estate planning attorneys, Josh and Laura Meier at (949) 718-0420 and request a planning session to get started.

    Reducing Taxes By Minding Your Cost Basis

    The cost of being lazy about cost-basis elections seems particularly high right now, given that the markets have generally been trending upward as the new regulations have gone into effect.

    Investing and taxation can be tricky things, especially if you have been investing for some time. This can get even trickier when you transfer assets to loved ones or contemplate doing so.

    Taxation hinges on a few fundamental numbers, one of which is the cost basis. Given some interesting changes to the law governing cost basis, you may need to rethink your plans.

    If you have investment accounts, then you likely are aware of some of the changes that have begun to take effect and will continue to roll out through 2013. One of the most obvious changes was recently addressed in a Morningstar article titled “Beware the Default Method for Cost-Basis Elections.” Are you aware of the difference between the old style of cost basis election and the new possibilities your brokerage firm or mutual fund company can offer?

    Essentially, the old system of electing a cost basis was typically in the hands of the investor since they had to track and record their own cost basis on various investments. This meant averaging out the cost basis when selling various stocks at tax time. Now the cost basis is directly reported to the IRS from the firm/broker.

    Companies tend to offer the default means of reporting, but since information is going directly to the IRS, this also means there is enough information for specific-share identification in the cost basis election. The Morningstar article offers some interesting math to support why this actually can be advantageous for the crafty planner.

    The bottom line is that any trimming you can safely accomplish can secure more favorable capital gains taxation. Why? Because this cost basis carries over into another magic taxation number, the stepped-up basis, when investment assets are transferred. In short, small numerical changes add up and may affect your overall wealth-transfer planning.

    Reference: Morningstar (March 26, 2012) “Beware the Default Method for Cost-Basis Elections

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