Expert: Dick Dennis - 7/19/2006

Question
My husband and I are recently married. We want to sell his former (paid off) home that is in a trust. His dad is the trustee and has given us permission to sell it. Is there paperwork we can fill out that will let us simply sell the home, that is, remove it from the trust status? Or, because it's in a trust, must we put the money from the sale directly into other property? We would like to avoid capital gains taxes, of course.

Thank you.

Answer
I know you most likely would want your own new house but you may be hit for a capital gains tax. Here is what you should consider doing: Go to an attorney who works with trusts and have your husband's name as the trustee. In otherwords, just switch titles with his dad. Or maybe his dad would just as soon take his name out of the trust altogether.

After that is done, then you should live in the house as your primary residence for two of the next five years. By selling it at the end of the two years, you become eligible to exclude up to $500,000 of taxable gain if you file your tax returns jointly. (Or $250,000 if only one person.) It doesn't matter that it stays in a trust or not.

Otherwise, if you sell the house now, your father-in-law would be able to escape paying capital gains if he has lived in it for the past two of the last five years up to $250,000. To make sure you understand what I say here, consult with your local tax expert (tax attorney, CPA, etc.)

And, of course, your father-in-law would be the one who signs all the papers for sale as long as he is able. Then if he wants to give you the proceeds from that sale you can go and buy the house you want.

If you father-in-law does not live in the property, nor has lived in it for any two of the last five years, then he is going to have a taxable event. Now you see why you should talk to a tax expert. I do wish you well.

Dick Dennis               dixiedee13@aol.com