Avoiding probate, death taxes and capital gains taxes on your home

Avoiding probate, death taxes and capital gains taxes on your home when you pass away.

Attorney Tom Olsen: Dwight, you are on WDBO. Go ahead.

Dwight: Hey, I was wondering, when you pass away and your homestead is left to your children, is that subject to taxes for them, or is there a way to protect it from probate, or what should you do?

Attorney Tom Olsen: Dwight, that's a great question but in fact, that is two different questions. Let's talk about probate first. Dwight, if you've got a will that says "When I die I leave everything including my home to my kids", that will is not going to avoid probate. That will is simply going to direct what happens to your home once it goes through probate. We have a great tool for avoiding probate called a Lady Bird Deed and we have free booklets on easy ways to avoid probate and Lady Bird Deeds. You can get that through our website olsenlawgroup.com. Go to the home page, scroll down, you'll see photographs of these booklets, and just fill in your name and mail address and we'll mail that out to you.

Now, with that said, Dwight, we can talk about taxes. Here in the state of Florida, every individual can pass up to $11 million free of the state taxes also known as death taxes also known as inheritance taxes. A married couple can pass up to $22 million free of death taxes. Then there's a good provision in the internal revenue code called the step-up basis, Dwight. The step-up basis says that when your children inherit your home upon your death through a traditional will, through a Lady Bird Deed, through a living trust, their basis for capital gains tax purposes will be the value at the date of your death.

Dwight, if the moment you pass away your home is worth $400,000 and your children inherit that home from you and they turn around and sell it for $400,000, they're going to pay absolutely no capital gains taxes. If they hold on to it for a year and sell it for $425,000, they'll pay capital gains on a $25,000 profit. Dwight, does that answer your question for you?

Dwight: Is the Lady Bird Deed a better option than a living trust?

Attorney Tom Olsen: Dwight, we consider a living trust be a complicated and often expensive tool for avoiding probate. We focus on using simple tools for avoiding probate. Unless you have something out of the ordinary, more than likely, these simple tools will work for you Dwight. They work for most people and so we would be avoiding probate on your home using a Lady Bird Deed, not a living trust.

Dwight: Okay. Thank you so much. I appreciate that.

Attorney Tom Olsen: You're welcome, Dwight.

Attorney Chris Merrill: You're welcome, and Dwight, we have a free booklet on the Lady Bird Deed as well as living trust. You can go to our website at olsenlawgroup.com and right there on the home page, you can click "request free booklets", put in your name and mailing address and we will get those out to you, and often that is a good starting point. Good question, Dwight, and hopefully again that helps get you off to the right start based upon that information, and of course again, Tom, he brought it up with the fact that there's really three different things that he was asking there. Probate, death inheritance tax, and capital gains. Three separate things.

Attorney Tom Olsen: Yes, exactly.