DEAR BOB: After reading your articles, I am convinced of the living-trust benefits for owning my properties and avoiding probate. My son and I have jointly owned a residential property for 10 years. I have advised him that we will both sign a deed to transfer title to the living trust. My son and daughter will be the beneficiaries of the living trust. Will they now inherit the rental property with a stepped-up basis on the date of my death to avoid capital gains tax? – Don F.

DEAR DON: No. If you die first, presuming you and your son are equal co-owners, your surviving son will receive a 25 percent interest in your share of the property and your daughter will receive the other 25 percent from you. The basis on your half of the property will then be stepped-up to market value on the date of your death.

Purchase Bob Bruss reports online.

Your son’s adjusted cost basis for his 50 percent of the property will remain unchanged. A living trust has no effect on the stepped-up basis rules for the beneficiary or for existing co-owners such as your son.

There are two primary living-trust purposes: (1) avoid probate costs and delays when a property owner dies, and (2) provide for management of your assets by the successor trustee if you become incapacitated, such as by a severe stroke or Alzheimer’s disease.

Before you do anything, please consult your tax adviser. More details are in my special report, “Living Trust Pros and Cons for Avoiding Probate Costs and Delays for Your Heirs,” available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet PDF delivery at


DEAR BOB: My downstairs was flooded and I had to move to a hotel. My insurance paid for the hotel and all the damages to my home. What type of paper can I file to prevent a mechanics’ lien? – Thelma M.

DEAR THELMA: If all the repair bills were paid, you don’t have to do anything.

The repair contractor cannot record a mechanics’ lien against your property if your insurance company paid his bill in full.

The only reasons a mechanics’ lien can be recorded against a property are for non-payment of a general contractor or a sub-contractor, unpaid construction employees (that rarely happens), and a material supplier who was not paid (often called a materialman’s lien).

If you were given the check from the insurance company, and you are expected to pay the contractor and suppliers, before you do so be sure to get a written release of lien or other proof the suppliers and subcontractors have been paid in full. For full details, please consult a local real estate attorney.


DEAR BOB: Is it possible to use IRA funds to put a down payment on a rental house without suffering adverse tax consequences? – LeRoy G.

DEAR LEROY: To use IRA funds for buying real estate, you need an IRA trustee who allows you to self-direct your IRA investments. You also need to take title within your IRA.

This usually isn’t practical for most IRA holders. However, if you have a Roth IRA, that’s a different story. Good websites on this topic are (Entrust Administration), (Sterling Trust Services, and (Mid Ohio Securities).

The new Robert Bruss special report, “The Whole Truth About Senior Citizen Homeowner Reverse Mortgages,” is now available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet PDF delivery at Questions for this column are welcome at either address.

(For more information on Bob Bruss publications, visit his
Real Estate Center


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