Q: If my friend left me her house through a trust do I get the step-up basis for tax purposes? Or do I pay taxes?
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A:
If your friend left you her house through a trust, the tax implications depend on the type of trust and the specific terms of the trust agreement. Here are a couple of common scenarios:
1. Irrevocable trust: If the house was placed in an irrevocable trust before your friend's death, and the trust terms stipulate that you inherit the property upon her death, you generally do not receive a step-up in basis. Instead, you inherit the property with a "carryover basis," which means your basis is the same as the trust's basis in the property.
2. Revocable trust: If the house was held in a revocable trust (also known as a living trust) and the trust became irrevocable upon your friend's death, you would likely receive a step-up in basis to the fair market value of the property as of the date of your friend's death.
In either case, inheriting a property does not trigger immediate tax liability for you as the beneficiary. However, if you later sell the property, you may owe capital gains tax on any appreciation in value over your basis in the property.
It's important to note that estate tax and gift tax rules may also come into play depending on the value of your friend's estate and the specific terms of the trust. Consulting with an estate planning attorney or tax professional can help you understand the specific tax implications of your situation.
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