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Apologies if this is a silly question. I am quite naive when it comes to taxes.

I am a dual US/UK citizen. My wife is a UK citizen. We reside in the UK.

My mother is a US citizen residing in the US (California). She is nearing the end of her life and I am trying to put her affairs in order.

She has a Living Trust and I am the trustee.

She also has a will and I am the executor. I am an only child.

She owns her house outright. I'm guessing it's worth about $400K.

At the moment, the Title to her house is owned jointly between my Mom, myself, and my wife. It has been like that (unbeknownst to us) for the past 15 years.

Many people have recommended transferring the Title to the Trust.

However, are there any tax implications for assuming ownership of the houe - and subsequently selling it as soon as possible - by being named on the Title versus by it being included in the trust?

At the very least, I feel like we should remove my wife from the Title because her non-US citizen status can only complicate things.

Somebody else told me:

I highly recommend re-titling the house from the three of you to just your mom and/or the trust. The reason being, that when you sell it, if she is the only one on the title, you get a step-up in basis to the fair market value on the date of her passing. Then, when you sell it you will have a gain or loss, depending on whether it increases in value after she passes and before you sell it. However, if you three are on the title, you only get to step-up her third of the property to fair market value. Of course, by virtue of you two transferring title back to her, it is considered a gift from you two. That being said, the current lifetime gift & estate exemption is $12,920,000 each or $25,840,000 for the two of you... but a gift tax return will be required to be filed since it will be well of the $34,000 annual exemption.

I don't fully understand that. It sounds like they are recommending transferring the title to either the Trust, or me and my Mom, or to just my Mom. But I still don't know which of those three option is the best.

Thank you for your time and help.

1 Answer 1

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You would need an estate attorney and a tax advisor to handle this efficiently.

You're correct that having a non-US person as a beneficiary of a US trust may complicate matters quite a bit. You're also correct that transferring the title back to mom would trigger gift tax complications (although you're also correct that the current generous lifetime exemption will help avoiding any actual tax payment, at least in the US). You're also correct with regards to the step-up basis and the current tax inefficiency built into the ownership structure.

Gifts going back and forth too close to the time of passing may trigger some additional complications. In order to do a proper estate and tax planning, and execute that plan you need to hire a California tax adviser, estate attorney, and you'll probably need to involve someone in the UK on both matters since both your spouse and (assumingly) you are UK tax residents.

This doesn't sound like a DIY situation.

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  • Thank you for the advice. We have an attorney who was prepared to do the Transfer of Title - but he seemed unsure of any of the tax issues, let alone international tax issues. So I have reached out to an international tax specialist in California for advice. I am also looking for an adviser here in the UK. I'll let you know what they say.
    – anonymous
    May 16, 2023 at 22:45
  • @anonymous attorneys, unless they're specializing in tax, don't usually know anything much about taxes. Same with accountants - even though CPA and Attorney license requirements include tax topics, they don't know much unless they practice it daily.
    – littleadv
    May 16, 2023 at 23:24

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