Some people think they are doing their children a favor and bypassing probate by gifting the children the house before they pass. While this does bypass the probate process since the deceased does not own the home they lived in, it creates a tax problem for the children. Giving the property to the children before passing , transfers at the value of the house at the time of the gifting. This becomes the basis for tax purposes. So let’s say the home is worth $100,000 at the time. With two children, each now has an interest in the property worth $50,000. Years later the generous parent passes. So the kids want to sell the house now. Only the house is now worth $200,000. The kids sell the house for $200,000, each gets $100,000. The kids now pay capital gains taxes on the sale. They each owe taxes on their $50,000. It was gifted to them at $50,000 each and they sold it for $100,000 each.
Had the parent put the home into a trust and left it there until passing the kids would then receive the home at the current market value or $200,000. This becomes the basis for tax purposes. Now they sell the house for $200,000. There is no capital gains tax to be paid because they acquired the property at $200,000 and sold it at $200,000. So by putting it in a trust you save the children the capital gains taxes down the road.
Remember the two constants in this world are death and taxes. You cannot avoid death. But you can help your kids avoid taxes.