Three Daughters Must Divide a California Property

Attorney and CPA · San Diego, CA · Member since 2017 · 590 posts · 422 votes

You raised a ton of issues in a short post. Couple ideas/issues off the top of my head:

If you're going to go with Idea 1, be very careful how you structure the transaction so as to avoid a property tax reassessment. You'll want to use the parent-child exclusion if you can to keep the property at Mom's assessed value, which if she has owned it for 3 decades is likely very low in comparison to fair market value. Due to CA's prop 13, the property taxes often do not increase as quickly in California as fair market value, and triggering a reassessment can mean tens of thousands of dollars additionally a year.

Are there powers of appointment in the trust? Does it allow for non pro rata distributions? Any issues with the daughter taking over the mortgage/triggering due on sales? What's the relative net worth of Mom, can she gift the home or cash without triggering gift or estate tax? By trust, I presume you mean a revocable living trust as opposed to an irrevocable trust? Mom is coherent, correct, just her body is disabled?

If the trust is a revocable living trust, then if you go with Idea 2, mom could probably use her exclusion under IRC 121 to avoid paying gains on the sale of the home. But if it's a revocable trust, usually mom would be the beneficiary of the trust and would retain rights to the proceeds. You're talking about the daughters receiving sales proceeds so not sure if it's in an irrevocable trust. And if it is an irrevocable trust, do the daughters have rights to just income, or do they have rights to principal as well? If principal, is it limited to an ascertainable standard or is it discretionary?

Sounds like you're going to need to get an attorney and a CPA involved for this one. Worth the cost to do it correctly and avoid triggering big tax bills. Let me know if you need referrals in San Diego.

*This post does not create an attorney-client or a CPA-client relationship. Readers are advised to seek professional advice.

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Michaela G.

Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes

7y

Ok, I know nothing about the whole probate and accounting stuff, but I'm wondering if this is all fair?

You write that 2 of the daughters get cash and the 3rd one will use her cash to buy the mom another house. Somehow that doesn't seem fair to the 3rd daughter. Do you not think that that might resentment at a later time?

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Thomas S.

Member since 2016 · 13k+ posts · 12k+ votes

7y

Idea 3. Daughters A, B, C ask mom what she wants to do with her home and her money. Ideally it should be sold and the money used to support mom in a retirement seniors living facility until she passes. Alternately mom rents a apartment or home and the money from the sale of the home go towards the rent.

Not sure why the three daughters do not see the money as something to be spent on mom. They may also want to double check their power of attorney rights. If mom is coherent they likely do not have power of attorney at all.

Seems like the vultures may be circling while mom is down..

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Gary Moore

OP

Investor · CA · Member since 2017 · 2 posts · 0 votes

7y

It's tempting to get defensive, however, I'm thinking I simply explained this poorly. The good news is that mom is recovering nicely. What were trying to figure out is where she will live, since her current home has far too many stairs. Rather than give up the poorly configured home (and it's legacy low tax base), were trying to figure out what options are available to keep the current home and then acquire a second home that is more conducive to someone with daily care needs. Actually, Katie Lepore explained it very well. It sounds like we just need to understand the differences between revocable and irrevocable, then determine what we have. Plus, mom is doing much better, so we'll be able to offer these options to her and allow her to make the best choice. We're simply looking for ways to take advantage of the existing trust and not lose the tax base on the existing home.

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Bryan Zuetel

Attorney · Orange County, CA · Member since 2017 · 242 posts · 99 votes

7y

@Gary Moore, you might want to explore the idea of a reverse mortgage. You would need to talk with a reverse mortgage specialist to see if this is the right option, particularly given the primary residence requirement for reverse mortgages. If you are intent on keeping the property, you may potentially do best (from a tax perspective) for the property to pass to the three daughters after Mom's death, when the three daughters will receive a stepped-up tax basis and may be able to sell the property with minimal taxes. Also, given the amount at stake here, you would do well to have a consultation with an estate attorney to make the best plans for Mom.

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Rob D.

Investor · Riverside, CA · Member since 2015 · 280 posts · 111 votes

7y

Originally posted by @Gary Moore:

My first post - ever! Unfortunately, my mother-in-law suffered a stroke last week and is currently in the hospital. It's likely she will not regain use of much her right side. This makes it very unlikely she can return to her tri-level home once she leaves the hospital. I'm hopeful that the BiggerPockets community can help us with ideas to put grandma in a better place, while minimizing what Uncle Sam takes for deficit spending.

Three daughters, A, B and C are equal recipients of a home in Northern California which is in a trust. They have power of attorney with the mother recovering from a stroke. There is roughly $750K in equity in the home ($950K home with $200K mortgage), which grandma has owned for 3 decades. The home is a tri-level and is not suitable for grandma to return home to.

Idea 1

Daughter A, wants the house. If the house were sold to daughter A and then daughter B, used her $250K in proceeds to go and buy a home for grandma to live in, while daughter C just took her share in cash.

Idea 2

House is sold to a regular buyer. Daughters A and B each go and buy a new home, while C takes her $250K in cash.

Any ideas on how to minimize taxes with either of the two ideas above, would be greatly appreciated. The sisters all trust eachother, so this allows for greater flexibility in doing something unique. Can't wait to see what ideas roll in. Happy Thanksgiving!

Many thanks,

Gary

Easiest way is to put house on the market or one of the daughters gets a loan and buys out the other two daughters equity. You really don’t want to be unique in such situation.This way everyone gets their cash or the property and does whatever they wish to. I don’t get why they are getting to cash out though. Every time that I ran across someone in such situation where multiple siblings received a property there was infighting and eventual distrust. In my trust all property assets are to be converted to cash and disbursed to charities, relatives etc. personal property is either given away or to be sold. I’ve seen too many families stop talking to one another because they felt that they “didn’t get their fair share”. Sell the property and walk away.

My question really is why are the daughters selling the property and cashing out? The mom isn’t dead. And buying another house just ups the property tax and lots of costs if it’s sold on the market and the moves aren’t cheap. The mom should be able to stay in her house. Put one of those motorized stair chairs in the house. Unless she’s totally incapacitated bed /chair ridden the house should be sold and the money go to helping her medically not for the daughters to cash out. Once she dies then the leftover money goes to the daughters. The daughters shouldn’t even be thinking of the money. They should be looking 100% at the moms well being and the money it’s gonna cost for healthcare.

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Karen O.

NYC, NY · Member since 2016 · 619 posts · 456 votes

7y

So sorry for your Mom's difficulties.

Can we assume that even converting the first floor to Mom's living space, and possibly turning the upper two floors into a rental unit is out of the question?

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Three Daughters Must Divide a California Property

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