Will Massachusetts Vacation House in Trust Receive Step-Up in Basis?
My parent placed her Massachusetts vacation home in a revocable realty trust and included her two living adult children and herself in this trust. She apparently did this to avoid probate in Massachusetts as she is not a resident in this state, and this one piece of real estate is the only asset in the trust. Does the realty trust’s residential asset receive a “stepped up basis” upon my parent’s death?
Yes. Since the trust is revocable, your mother is treated as the owner for tax purposes and, as a result, the property held in the trust will receive a step-up in basis upon her death.
Be aware that even though your mother lives out-of-state, the property will be subject to the Massachusetts estate tax. Massachusetts shares with Oregon the lowest estate tax threshold of any state at $1 million. The way it works is that if your mother’s total estate, not just the property in Massachusetts, exceeds $1 million, her estate will be subject to the tax, but it will be prorated. So, if for instance, your mother’s estate totaled $2 million and the Massachusetts property was valued at $500,000, your mother’s estate would owe the Massachusetts Department of Revenue a quarter of what the tax would be on her entire estate if she were a Massachusetts resident.