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Law Educator, Esq.
Law Educator, Esq., Attorney
Category: Legal
Satisfied Customers: 118630
Experience:  JA Mentor -Attorney Labor/employment, corporate, sports law, admiralty/maritime and civil rights law
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This is a question parents. They want to sell their current

Customer Question

This is a question for my parents. They want to sell their current property in CA and buy another property in another area in CA where they can take advantage of the prop 60 to transfer the base value for reducing the property tax. However, they want to
stay private this time and protect their identity and the assets. They already have a standard living trust with their own names for the name of the trust and the trustees. Can the same living trust be changed to a fictitious name for the name of the trust
and with a third party as the trustee(maybe a corporation) or do they have to set a brand new living trust for that? Will they still be able to take advantage of the prop 60 to transfer the base value from the old property or not with the new trust with a
fictitious name and a corporation as the trustee? We have learned that the living trust can be made irrevocable at a later time to protect their assets, but when this living trust becomes irrevocable in the future, does the irrevocable trust has to pay a higher
property tax and gift taxes for all the assets and the real estate property? when the revocable living trust changes to irrevocable, will this result in any gift taxes issues or is it true that only new assets and properties are added to the irrevocable will
encounter gift tax issues? Do they have to start buying the new property under a new irrecoverable living trust to avoid gift taxes but they can not take advantage of the prop 60? Are there ways to achieve all that? Keep private, use prop 60 for property tax
and be protected by an irrevocable trust? Can they use a land trust to buy the new property first, and change the land trust to be irrevocable later, will that result higher property tax by doing so and also gift taxes? If a new property is purchased in the
revocable living trust first with a fictitious name and a third party trustee, they will still be able to take advantage of the prop 60 to transfer the base value from the old property or not? However when this living trust becomes irrevocable at a later time,
does the irrevocable trust has to pay a higher property tax and a gift tax?
Submitted: 2 years ago.
Category: Legal
Expert:  Law Educator, Esq. replied 2 years ago.

Thank you for your question. I look forward to working with you to provide you the information you are seeking for educational purposes only.

The trust can be named whatever they want to name it. As long as they are beneficiaries of the trust they can get the benefits of the Prop 60 transfer.

The living trust can be made irrevocable or becomes irrevocable at their death. Upon becoming irrevocable, the Prop 60 credit remains in place. The irrevocable trust is treated like a separate person, they pay the same tax rate as an individual would pay.

There are no gift tax or other tax issues when the trust converts from revocable to irrevocable. The irrevocable trust is the only trust that gives them any asset protection.

Them buying and holding property under the irrevocable trust would avoid estate probate and any possible estate taxes that may be due. It has nothing to do with gift taxes.

Customer: replied 2 years ago.
Thank you!If they add more asset for example more funds into a bank account that already belonged to the irrevocable trust, or adding additional bank accounts or adding additional real estate properties will that result in gift tax?
Expert:  Law Educator, Esq. replied 2 years ago.

Thank you for your reply.

They can add anything they want to the trust once it is formed. It would not result in a gift tax to add to the trust. The trust will have to pay income tax on any income they make off of the assets placed into the trust.

Customer: replied 2 years ago.
You mean even its irrevocable trust, it can still be added for no gift taxes issues? Isn't the same as if they gave me x amont of dollars that's exceeding a yearly gift max, I will have to report to IRS and pay gift taxes? Sorry so many questions!
Expert:  Law Educator, Esq. replied 2 years ago.

Thank you for your reply.

Even if it is given to the irrevocable trust, it is not a gift because the grantors can fund their trust without it being a gift. You would not have to pay gift tax on assets transferred to the trust. Also, under IRS laws for personal gifts, such as to you, no gift tax is actually due unless it is over $5.6 million, it is reported but it goes against the person's $5.6 million gift tax credit.

Customer: replied 2 years ago.
I think I am referring to Annual gift tax exclusion of $14,000 to an individual. Isn't $5.6 million a credit limit for estate tax?
I meant when they are still living before giving me anything, will they have tax issues when more assets are added to the irrevocable trust. I know they will be the grantor, but I am confused because I thought with an irrevocable trust the grantors give up the rights to make any changes to this trust, if so how can the grantors still fund this irrevocable trust?
Expert:  Law Educator, Esq. replied 2 years ago.

Thank you for your reply.

There are two exclusions, there is the $14,000 exclusion which is the annual exclusion and then there is a lifetime exclusion of $5.6 million. However, this does not apply to placing assets ito a trust. The grantor can make changes to an irrevocable trust, but they cannot dissolve the trust. They can change terms and even beneficiaries, but they cannot dissolve the trust.

Customer: replied 2 years ago.
My parents were told from the bank that a regular living trust can also have its own EIN a tax ID to report to IRS, how does this make any difference with the irrevocable trust except that the irrevocable trust cannot be dissolved? Their lawyer who made the living trust for them does not recommend irrevocable trust and saying it's not good to do that. We want to find out from you, can anyone make a law suit against them to get the assets in a revocable trust with its own tax ID?
Expert:  Law Educator, Esq. replied 2 years ago.

Thank you for your reply.

The regular living trust that is revocable gives them no protection at all from any creditors, including medicaid if they ever need long term care. So, medicaid would consider assets in a revocable trust as their assets and it could stop them from getting benefits. Medicaid does not consider assets in an irrevocable trust to be their assets and they are not included in benefit calculations. Also, in a revocable trust, any creditor they have can attach that property, but they cannot touch anything in an irrevocable trust, so it is the best asset protection tool available.