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Estate Planning and Your Next Home Purchase

The estate planning dimension of the empty nester purchase is the intersection of real estate and legal planning. The specialist raises the questions. The estate attorney answers them.

Revocable Living Trust: The Standard Ownership Structure

Most estate attorneys recommend that empty nesters purchase in a revocable living trust: (1) What it is: a legal entity you create that holds assets during your lifetime. You are the trustee and beneficiary — full control during your lifetime, nothing changes operationally. On death, the trust distributes assets to named beneficiaries without probate. (2) Why it matters for the home purchase: a home held in a revocable living trust passes to heirs at death without going through probate. Probate is the court-supervised process of validating a will and distributing assets — typically 6–18 months and 3–8% of estate value in attorney and court fees. Florida has a simplified summary administration available for smaller estates, but for a $900K condo, avoiding probate entirely is significantly more efficient. (3) How lenders accommodate: most lenders readily accommodate purchases in revocable living trusts. Required documentation: copy of the trust, certification of trust, confirmation that the trustee has authority to mortgage. Standard jumbo and portfolio lenders process this routinely. Privacy and entity ownership guide.

Step-Up in Basis: The Heir’s Tax Benefit

The step-up in basis is the most valuable estate planning benefit of real estate ownership: when a property passes to an heir at the owner’s death, the heir’s cost basis is reset to the fair market value at the date of death. All capital gains accumulated during the owner’s lifetime are eliminated. Example: couple buys a condo for $950K. At the surviving spouse’s death 15 years later, the condo is worth $1.6M. The heir’s basis: $1.6M (the date-of-death value). If the heir sells immediately: $0 in capital gains tax on $650K in appreciation. If the couple had sold instead: $650K in capital gains taxable at 15–20% federal. The step-up eliminates $97,500–$130,000+ in tax. This is why estate planners often recommend holding real estate until death rather than gifting it to heirs during the owner’s lifetime (gifts carry the original basis; inherited property gets the step-up). Consult an estate attorney for your specific situation.

Title Between Spouses: Joint Tenancy vs Tenancy in Common

How empty nesters hold title between spouses has estate planning implications: (1) Joint tenancy with right of survivorship (JTWROS): the most common married couple structure. On one spouse’s death, full ownership passes automatically to the surviving spouse. In Florida, married couples often hold as tenancy by the entirety (TBE), which provides asset protection from individual creditors in addition to survivorship. (2) Tenancy in common: each spouse owns a defined percentage. At death, that percentage passes through the will (or intestacy) — not automatically to the survivor. Used when estate planning requires different ownership percentages or when each spouse has separate estate planning goals. (3) Trust ownership: both spouses may hold as trustees of a joint revocable living trust. This is the most flexible and comprehensive structure for estate planning purposes. (4) No wrong answer without more information: the right title structure depends on the estate plan, the size of the estate, and state law. Consult an estate attorney in the state where the property is located before closing.

What to Discuss With an Estate Attorney Before Closing

Questions to ask an estate attorney before the empty nester purchase closes: (1) “Should we purchase in our existing revocable trust or open a new one?” (2) “What title structure between us optimises the estate plan and asset protection?” (3) “Does this purchase affect any existing QTIP trust, irrevocable trust, or estate plan documents?” (4) “If one of us predeceases the other, how does the condo transfer and at what cost?” (5) “Should we gift a partial interest to our heirs or hold the property entirely for the step-up benefit?” (6) “Does Florida’s homestead protection apply and does it affect estate planning for this property?” These questions take 60–90 minutes with an estate attorney and save the estate $50K–$300K+ in probate costs and unnecessary capital gains tax.

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Frequently Asked Questions

Should I buy my new home in a trust?

A revocable living trust avoids probate, simplifies transfer to heirs, and preserves the step-up in basis at death. Most lenders accommodate revocable trust purchases with minor additional documentation. Consult an estate attorney for your specific situation before deciding.

What is step-up in basis and why does it matter?

At death, heirs receive the property with a cost basis equal to its fair market value at that date. All capital gains accumulated during the owner's lifetime are eliminated. A $950K condo worth $1.6M at death: the $650K gain is never subject to capital gains tax for the heir.

Should we hold the new home as joint tenants or tenants in common?

Depends on the estate plan. Joint tenancy with right of survivorship is most common for married couples. Florida married couples often use tenancy by the entirety for the additional creditor protection. Trust ownership is the most comprehensive estate planning structure. Consult an estate attorney.

Does it matter if we gift the property to our children instead of leaving it at death?

Yes significantly. Gifted property carries the original cost basis (no step-up). Inherited property receives the step-up at death (all accumulated gains eliminated). For appreciated property, holding until death and passing via inheritance is typically far more tax-efficient than gifting during lifetime.