An estate includes a small house appraised at $220,000, which the estate owns, and the family is trying to determine the best way to transfer the home to a 30-year-old adult son. The article, “Parents seek best option to sell inherited estate to adult son” from msn.com, offers a few different options.
One option is to have the son purchase the home from the estate directly. Another is having the parents buy the house and rent it to him, with the end goal of the son buying the home when he is in a better financial position to purchase the house.
The home is currently in a trust, which was done to make it easier for the parents or any other heirs to sell or transfer ownership of the home.
The property can remain in the trust, but the estate or the in-laws do not own it. Instead, it is owned by the beneficiaries of the trust.
The date the surviving in-law spouse died matters. Let’s say the mother-in-law was the last to die, and she died in 2022. If the property was worth $100,000 at the time of her death and its value is now $220,000, the sale to the son would trigger a tax on the $120,000 profit.
Ordinarily, suppose the property is sold within a year of the death of the property owner. In that case, the value of the property at the time of death is assumed to be identical to the amount of the sale, and there are no federal taxes to pay on the sale, as there is no profit.
What about having the son buy the property? If he can qualify for a mortgage and buy the home for the appraised amount of $220,000, the trust will likely be able to avoid any taxes. This is especially true if the date of the mother-in-law’s death was within the last year or if there is documentation showing the home had a $220,000 value at the time of her death.
What if the son can’t qualify for a mortgage, and the parents decide to rent the property to him? The property would become an investment. The wife and brother will enjoy the tax benefits of depreciation, be able to deduct real estate taxes, deduct other expenses and take the rent as income. If and when the son does buy the home, the wife and her brother will have to pay taxes on the profit from the sale of the home—assuming the house continues to appreciate in value—and will have to repay the depreciation benefit received when they owned the home as an investment property.
One thing to be explored is whether the parents or the deceased in-laws have any income or estate tax issues. Under current federal estate tax laws, as long as the estate is below the $12,900,000 exemption, there would be no federal estate taxes to pay. But some states have a state estate tax or other fees on assets left in an estate. An experienced estate planning attorney will be able to help with this.
Regardless of how the parents decide to manage this transaction, having an experienced attorney to draft the legal paperwork will be important. Everything must be carefully documented so all beneficiaries can be confident that the property transfer was done correctly.
Living trusts and probate can be a maze to navigate. If you are trying to deal with a matter involving estate planning or probate in the Los Angeles area, our probate attorneys can probably help.
If you have any questions, schedule a free appointment with us through our online appointment page.
You can also read reviews from some of the hundreds of clients we have helped over the years.
Reference: msn.com (Aug. 10, 2023) “Parents seek best option to sell inherited estate to adult son”
Founded in 1975 by L. Rob Werner and serving California for over 48 years, our dedicated attorneys are available for clients, friends, and family members to receive the legal help they need and deserve. You can trust in our experience and reputation to help navigate you through your unique legal matters.
Whether you need help creating a living trust or navigating probate, our living trust law firm's compassionate team of estate planning lawyers and probate lawyers are here to help you and ready to answer your questions.
Our goal is to make your case as easy as possible for you. Hiring a lawyer can be a daunting task, but it doesn’t have to be. From the moment you contact our firm, through the final resolution of your case, our goal is to make the process easy and understandable. We cannot change the fact that probate is a long and complicated process, but through our Werner Law Firm Difference, we strive to go out of our way to keep you informed of your case through every step of the way. We are constantly refining our processes and procedures for a more streamlined and calm client experience. Our goal is to have you feel like a burden was lifted from your shoulders, and that we made the whole process an easy one
If you're dealing with a legal matter, we urge you to schedule a free initial appointment today and join the many satisfied clients who have contacted Werner Law Firm.
23 Corporate Plaza Dr., Suite 150
Newport Beach, California 92660