I was named Trustee of this Living Trust in 2013, I helped my late Mother establish her own Living Trust in 2007. She passed away in 2013. Now my one sibling needs money for his kids Colleges tuitions. I paid for a Commercial Property Appraisal, the current appraised value is $195K. I do not need a broker. I have the cash liquid. But I also am entitled to 1/2 of the 195k SO I NEED TO OFFER TO MY SIBLING HALF OF THE APPRAISED AMOUNT, CORRECT? That number is $97,500.00.
I googled and downloaded a 10 page Commercial RE Contract. There is already a tenant established in the property for the past 25 years. I have been his landlord since 2007.
My next question is do I need to hire a RE Attorney or just an Escrow Company? I am very familiar with the property it was built in the 1970s when my parents bought it The property has no mortgage and property taxes are grandfathered in (Prop 13) Property is in CA in LA county near Malibu. I am the person who deals with the insurance payments as well as paying the property taxes. The insurance and property taxes run 2334 annually. The property currently rents for 950/mo but I have 2 new potential tenants @ 750.mo each.
Flipper · Cupertino, CA · Member since 2015 · 265 posts · 27 votes
7y
When I co-own I try to setup a co-ownership agreement that define how sales will be conducted, buy/sell agreement, splitting of costs, etc.. To avoid the "sense" of impropriety, I would hire an atty.
Are you planning on distributing the property out of the trust or keeping it in the trust? Do you know if the trust has a non-pro-rata distribution clause? The property was owned by your parent? If so, you may want to contact a tax or estate planning attorney for advice on how to preserve your parent's property tax basis by using a parent-child exclusion from reassessment. It sounds as though you buying out your sibling would be considered a sale, which would trigger reassessment as to half of the property (or whatever portion is purchased), thereby increasing the property taxes. If there's a way to keep your parents' Prop 13 value, it could save you a lot of money each year.
*This post does not create an attorney-client or CPA-client relationship. This post is informational only and readers should consult with a professional who is aware of all the facts of their particular situation.
The property is located in LA county. My goal is to not trigger a sale. I would like to keep the property in the Living Trust and have my sibling sign a deed transfer then have it notarized the same day with my sibling present, then I will pay him his Equal share of what the total value of the property is.
I would like to start a Charity in my Late Mother's name, so I am thinking I would keep the Trust open for that reason. I am thinking that I need to speak with my CPA regarding this. I also am considering putting or buying the property in a Self Directed IRA. That is just another idea I have
I also just learned that My Father and my Late Mother had an agreement:
My Father told me yesterday that when he lists and sells his commercial property, He is giving half of the proceeds to me and my sibling equally. His tenant is vacating after a 2 month notice. May 15th is his vacate day. I told my tenant to stay and consolidate his paint( he is a CA state Licensed Painting Contractor)
I have a feeling I can consult my NOLO Estate Planning and Trustee books for anything that has to do with Living Trusts. We have been filing K-1's since 2008, that is when my late Mother passed away As always, I am probably missing something.
Well I certainly don't have all the facts or know your background or experience regarding these matters, nor do I know how in depth the NOLO books are, but I think there are several issues that you have posed in this one situation. You likely want to consult an attorney to have it done correctly because if it is done incorrectly, it could trigger a lot of money in taxes and other issues (especially if you thought you did it correctly and turns out you didn't and then you add interest and penalties to the taxes owed). Not to mention, the legal bills to fix anything that goes wrong will be significantly more money than just paying to have it done correctly in the first place.
Couple of things off the top: trusts are only allowed to stay open for as long as is reasonably necessary to complete the administration. Depending on how your mother's trust is structured and the terms of it, it is possible that your trust could essentially be treated as being terminated in the eyes of the IRS although you have not formally closed it down. This could cause major tax issues.
Secondly, I'm very confused how you would have your sibling sign a deed giving up his interest in the property if you are keeping the property in the trust. If the property is in the trust, it should probably be titled in the trust and then there wouldn't be a deed recorded since title is not being transferred if you are keeping it in the trust. If property is in the trust and you are keeping it in the trust, then what is the purpose of a deed? You may want your brother to sign some documents but it probably not be a deed (based on what you're saying).
Third, I do not see the connection between the charity and the trust being open. By charity, you can mean any several avenues of tax exempt vehicles and some are incredibly time consuming and heavily regulated that they only make sense if you have an incredibly large endowment to give to the charity. Start up costs for a charity can be very expensive. I am not sure how that is related to the trust unless there are provisions in the trust about creating the charity or a charitable trust or making a charitable bequest. Again, I can't see the documents so don't know what you're dealing with here, but tax exempt entities are not a very straightforward or intuitive area to deal with, and if you structure things improperly, you could risk blowing the tax exempt status which could have major repercussions.
Fourth, the property tax issues that I mentioned before can represent a very large amount of dollars if the transaction is treated as a sale. An increase in property taxes would not be a one-time fee of course (such as capital gains upon sale) since they are levied annually. There are several forms you need to file with the County to preserve the property tax basis of your parents and it is likely that the Assessor will ask for a copy of the trust document, so you want to ensure you are within bounds of what the trust allows you to do. You also may have issues transferring title depending on who signed as trustee on the last deed if that was not also you. If your parent signed as trustee, there is paperwork you need to file to have a clean chain of title showing your parent was trustee and now you are trustee and have authority to sign anything related to that property. Barring provisions in the trust allowing otherwise, it is likely that you receiving the property and your brother receiving money would be treated as a sale unless structured and documented properly. Again, you probably want to consult with someone fully aware of the situation and who can read the actual trust document.
What you are dealing with is NOT an easy situation. Without knowing your background, you may be able to navigate it yourself, but the consequences of not doing it correctly would be major taxes (possibly for years to come if the property is reassessed) and possible errors with title. I would think it would be worth the cost of paying an attorney to help you with this (it is likely a CPA can only navigate some of these issues or navigate to a lesser degree) to ensure that it is done properly and save you money in the long run. You may at least want to pay for a consultation with an attorney to get a sense of all the steps that are involved to understand the scope of what you're dealing with.
*This post does not create an attorney-client or CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice from someone who knows the full scope of their situation.