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<AND you would still receive that step up in cost basis.>


This is a huge point. People employing this type of plan often only look at the obvious and miss some of the not so obvious things.

When the property is sold, it can actually generate a tax deductable loss for the beneficiaries. This happens because any expenses related to the sale of the house are deductable. So if the stepped up cost basis were 100k and your net proceeds were 90k after expenses, you would have a 10k paper loss, which would pass through to the beneficiaries via a K1.

Similarly, if a person owning any stock signed it over before their death, it could create all sorts of tax problems. It is not unusual for an older person to own a chunk of stock in the company they or their spouse worked for. If the adjusted cost basis was $5 a share and it was valued at $50 (not an unreasonable scenario if say the person owned Exxon from the 1970's) you have a significant potential taxable event. If they transfer it before they pass, the new owner MUST take the $5 cost basis along with the shares. If ownership passes at death, the new stepped up basis would be $50. If it passed at death at $50 and was later sold at say 45, the net proceeds would actually produce a paper loss of $5/share. The DIY method of selling at $45 with a $5 basis would produce a $40/share taxable gain with the exact same proceeds.

I don't say that any particular action is necessarily wrong. Where it gets dangerous IMO is when one follows anothers actions without fully understanding all of the consequences. Most of us are not very experienced in this area and a mistake could be very costly. The only safe assumption to make is that each persons circumstances will be different. What happens so often is that people view getting professional advice as an expense rather than an investment. What you don't know can hurt you especially since most actions, once taken, cannot be undone.


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