Do you need to amend your trust when one of your children passes away?
John: My mother-in-law currently lives with us, and she has a piece of property that's worth in the neighborhood of almost half a million dollars. It's just a big lakefront piece of property with a little tiny house. Now, she has that set up in a trust for her daughter and her son. My question is-- Well, it's twofold. My question is the trust was set up for her daughter and her two sons. One of the sons passed away. Does she have to redo that trust so it just has those two individuals on it?
Attorney Tom Olsen: If we looked at the trust, it would answer the question for us as to what happens to deceased son's share of her estate. Did the deceased son have any children of his own?
John: Yes.
Tom: If I had to make a guess, his one-third interest in Mom's estate is going to go to his children. That's probably the way it's written. It needs to be checked, and the answer lies within the trust. If Mom says, "Hey, I don't want it to go to his children. I want it to go to my two surviving children," then more than likely Mom's going to have to do an amendment to her trust and make it that way.
John: Okay. Then I have one more question, if you don't mind, and this-
Tom: Go ahead.
John: -is she's beginning dementia-
Tom: All right.
John: -and so she's talking about wanting to sell the property. Now, from what I understand if she does that, anything over $250,000 is subject to capital gains tax, and she wouldn't--
Tom: Is she living there?
John: No. She's living with me.
Tom: Well, then everybody has a $250,000 exemption on the sale of their home. If this is not her home, then she's going to pay capital gains. She's not going to have a $250,000 exemption.
John: It'd be capital gains on the entire amount?
Tom: You got it. Now, John, if she'll hold on to it, which she should, and when she dies she still owns it and she passes it on to her children, her children will get what's called a stepped-up basis. Their basis for capital gains tax purposes will be the value of the date of Mom's death. For the purposes of saving on the capital gains taxes, in fact paying no capital gains taxes, it would be best if Mom left that in her trust and not sell it during her lifetime.
John: Yes, okay. That's right what I thought. I appreciate you answering the questions for me. Thank you.
Tom: You're welcome, John. We'd be pleased to assist you with helping with Mom's trust and mending it if it needs to be done so.
[00:02:42] [END OF AUDIO]