Complex Trust & Capital Gains

[Mary Eubanks]

I have an investment home I will be selling in the next couple months. I just set up our complex trust and have not transferred the property into the trust's name yet. My contact for the trust is saying I can wait and sign the quit claim deed to put the house into the trusts name at closing which will still protect me from capital gains. Is that correct?

[Lance Lvovsky]

Couple things you need to know.

Transferring an asset into an irrevocable trust may have gift tax implications, and you may need to file a gift tax return.

Basis gets carried over when an asset is gifted into a trust. i.e. there is no change in basis

An irrevocable trust (non-grantor trust or complex trust) does not avoid paying capital gains tax. Whomever told you that is wrong. If you are working with a "promoter" of a tax strategy, run away.

When you sell real estate, there will still be capital gain. With that being said, there are strategies to defer and minimize capital gains. Common strategies include 1031 exchange and installment sales. A not so common strategy that I have used entails utilizing a few provisions of the tax law and effectively what happens is the capital gain gets spread over 25-30 years, yet the cash is received all at once. This is heavy planning using IRC 453.