In the field of heritage planning, setting up a recoverable living trust can be an effective way to help your family avoid probate when you die. When you put valuable assets into a recoverable living trust, those assets may be subject to capital gains tax when they are liquidated.

Tax savings
When setting up a recoverable living trust, many do so with the aim of saving taxpayer money. In fact, using a recoverable living trust doesn’t save you any money on paying income tax or capital gains tax. For example, if you put the shares in a recoverable live trust and then sell them for a profit, capital gains tax will still be calculated on the value of the proceeds.
Excluding capital gains
Many people who create a recoverable living trust are putting their homes in trusts.
This way, you don’t give up your right to claim capital gains tax exclusion when you sell your home. When you sell your main home, you’ll be excluded for up to $250,000 as an individual or $500,000 as a couple if you’ve lived in your home for more than two years, since 2011. Even though the house is entrusted, it remains your main residence and you remain exempt.
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Beneficiaries Pay Taxes
If you die and your trust beneficiary inherits the property, he may avoid paying capital income tax on that property. When you inherit assets that have been prized for value, the original basis of those assets will increase to value on the day the owner dies. This means that if the assets in the trust are sold as soon as they are inherited, then the beneficiary may not have to pay capital gains tax.
Consider carefully
If the trust is set up to pay regular income to the beneficiary, the beneficiary may have to pay capital gains tax or income tax on that income while you are still alive. For example, if the trust is designed to sell some stock of securities each year and pay the beneficiary of the trust, then the beneficiary will have to pay tax on that amount upon receipt if the trust does not pay taxes. First.