Arizona Real Estate Notebook

by Phoenix attorney Christopher A. Combs, partner with Combs Law Group, P.C.

Question:

My husband and I established a revocable living trust in another state. We are co-trustees of this trust. We have purchased a second home in Scottsdale and have titled the home in the trust. The title company said that we could not designate on the title that our interest in the home is community property so that we would have the tax benefit of step-up in basis when the first spouse dies. Did we lose this tax benefit when we titled our home in the name of the trust?

Answer:

No. Although you titled the home in the name of your trust, there was no taxable event because you and your husband could transfer the title from the trust back to the two of you individually at any time. Therefore, inasmuch as there was no taxable event, for tax purposes the interest in the home is presumptively community property, and you should have the tax benefit of owning the home as community property.

One of the advantages of a revocable living trust is when real property is owned in more than one state, the terms of the living trust control. Otherwise, upon your death, there will have to be probate in multiple states.

The above is for informational purposes only and is not intended as definitive legal or tax advice. You should not act upon this information without seeking independent legal counsel. If you desire legal, tax or other professional advice, please contact your attorney, tax advisor or other professional consultant. Reprinted with permission. Copyright 2007, all rights reserved.