[WSBAPT] Another Deed quandray

[Philip N. Jones]

If the property is already in the trust, perhaps all you need is an amendment to the trust adding Husband as a co-trustee and declaring all of the property (or just the house) to be community property.  But I will let others opine on that subject, because I am not sure of that answer.
One more point I am not sure of:  Section 1014(e) denies a stepped-up basis for appreciated property acquired from a decedent who had acquired the property from the beneficiary within the one-year period prior to the decedent's death.  §1014(e).  As a result, gifting low-basis assets to a terminally ill relative, only to receive it back again when the relative dies, does not increase the basis.  It is an open question whether the denial of the basis step-up applies not only to the beneficiary, but also to a trust for the benefit of the beneficiary.  Thus if Wife conveys appreciated property to Husband, and Husband dies within one year and then bequeaths the property to a credit shelter trust for the benefit of Wife (or to a QTIP trust for the benefit of Wife), whether the trust receives a stepped-up basis on Husband's death is uncertain.  Siegel, I.R.C. Section 1014(e) and Gifted Property Reconveyed in Trust, 27 Akron Tax J. 33 (2012).  Regulations under §1014(e) have not yet been promulgated, but the IRS has taken the position that §1014(e) does deny a basis step-up for appreciated property left in trust for the benefit of the spouse who conveyed the property to the decedent within one year prior to death.  PLRs 200101021 and 200210051.  See also PLRs 9026036 and 9321050.  For further uncertainty, you are adding the complexity of a revocable trust as the conveying vehicle.  And you might even be adding the complexity of a joint revocable trust.
All of this makes my head hurt.  Perhaps someone else on this listserv knows the real answer.  If not, go find someone who does.
Phil Jones

Philip N. Jones
Duffy Kekel LLP
900 S.W. Fifth Ave. Suite 2500
Portland, OR 97204
pjones at duffykekel.com<mailto:pjones at duffykekel.com>
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From: wsbapt-bounces at lists.wsbarppt.com <wsbapt-bounces at lists.wsbarppt.com> On Behalf Of Kira Rubel
Sent: Monday, April 24, 2023 3:43 PM
To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com>; WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
Subject: [WSBAPT] Another Deed quandray

To my deed/title experts: help.

I have a Client who owns a home in Pierce County in her and her deceased husband's (Husband #1) living trust. She is now (after an appropriate amount of time) remarried to Husband #2. Husband #2 is terminally ill.  After obtaining CPA approval, she would like to take her home and make it Community Property with Husband #2 to get a step up in tax basis when he passes away.  She intends to keep it in her existing living trust and add him as co-Trustee as well.

My question is - how many deeds to accomplish this?

Presently the house is held as: Client and Husband #1, Co-Trustees of the Smith Family Trust.

Thoughts?

Kira M. Rubel, Esq.

*Licensed in CA and WA
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