How Does This Work?

The first step usually involves meeting with a financial advisor experienced with this strategy to run some numbers for you. (We may refer you to one.)  The next step (before you list your property for sale) would be to have the trust document drafted by a competent attorney. Then, you transfer your home into the trust, sell it as trustee of your trust tax-free, invest the proceeds and start collecting checks from the income for the rest of your and your spouse’s lives (this income may also continue for other family members for a limited period of years). After you pass away, the trust provides a legacy in your name, helping charities once all the income beneficiaries are deceased (or after a period of years).

Don’t believe it and think this sounds too good to be true? Well, the fact is that many of the universities and hospitals in the country have a large portion of their endowment assets in these types of trusts.

Here’s an Example

Let’s assume your residence is worth $2.5 million. Your cost basis for capital gains purposes is $300,000. Part of the residence - - 60% - - is put into the trust. This portion of the sale proceeds ($1.5 million) may then produce a lifetime stream of retirement income for you and your spouse, of about $7,500 per month. The sale proceeds from the other 40% ($1 million) can be used by you to buy a smaller home or for whatever else you may want to do. Depending upon your age, the net tax paid on the sale could be close to zero. That’s due to a significant charitable deduction that is allowed on the date the 60% of the home is put into the trust, because charities you name will receive the balance in the trust after you and your spouse are gone. If you want additional money to pass to your kids or other family members, the tax savings from the charitable deduction may help purchase a life insurance policy or investments for them.

A Quick Summary of the Benefits

Here is a summary of the benefits to you of this Capital Gains Bypass Trust strategy:

  • No tax on the sale of your current residence
  • You can downsize to a new home (paid for in cash from the sale)
  • You’ll receive additional retirement income for the rest of your and your spouse’s lifetimes
  • You may provide financially for your loved ones after you pass away
  • Plus, a significant donation is made to your favorite charity after you’re gone

How does that sound to you? Not too bad, right?

If You’re Ready to Sell Your Home, ACT NOW

In order for this special trust strategy to work for you, you need to take steps before you sell your home, preferably before you even list it! Once an offer is accepted, it’s too late to use this strategy.

This article offers only a brief overview and there are many more important details to discuss and consider before implementing this strategy. If you’re serious about selling your home, give us a call at 1-800-756-5596 and ask to see if this Capital Gains Bypass Trust is the right fit for you!

Philip J. Kavesh
Nationally recognized attorney helping clients with customized estate planning guidance for over 40 years.
Join The Conversation
Seyoum Taddesse 01/03/2023 01:09 AM
I was blown away when I read this article. No tax to Pay - may be minimal amount - and the ability to fund my retirement; ergo, this is my America. N.B. Mr. Kavesh you have such an innate perspicacity like a good detective. P.S. - I am a client of your firm.
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