Equity Trust held rental... Transfer apon death options?

Question

My mother holds a ET rental. I'm very familiar with ET but not the side I'm soon going to be dealing with.

Was told I can only hold the transfered account 10 years. Also it's 50/50 account with my sister also. Adds to complicated accounting.

Trying to come up with some creative options.

Do we sell it now in the equity trust account? While she's still alive. She pay the taxes{lower tax rate than us)?

Do we transfer it while my mother is still with us and then sell it? Or transfer it to her then sell it?

Or keep it as a IRA then invest in something else(there is other IRA accounts we could combine)

Any trust custodians that make holding 50/50 ownership easier than ET as if held in ET we need two ET accounts ( 1200/YR cost)

Sell it as a land contract?

Current rent is 1600/m market value

Worth 170-190k

Current tax bases is 60k

Anyone have suggestions...we don't need the cash (or inflated income for us) from it...but will also be holding or selling other IRAs also.

Thanks!!

Brett Synicky · Answer

@Jen Ray Why is it unfortunate taht it's Roth?! There are no taxes in the non-spousal inherited Roth IRA so long as it's met the 5 year rule

Jen Ray · Answer

Thank you so much for your reply It was very informative.

Do you believe it's possible that she could cash out that IRA while still alive and then transfer the ownership to one of her daughters? Unfortunately it is a Roth IRA.

Just trying to determine the best direction while she's alive or after she passes. I am a landlord myself and would love to keep this property likely be paying off my sister for the portion owed to her.

I could also keep it in an IRA myself but understand it would have to be discharged out within 10 But then I would be hit with the taxes from what I understand along with additional income...yikes!

Stanley Yeldell · Answer

Jen, you’re asking some great questions here, and you’re right—navigating inherited assets in a self-directed IRA like Equity Trust can get complicated, especially with joint ownership. Here are a few considerations:

Selling While She’s Alive: This could potentially reduce the tax impact since your mother’s tax rate may be lower than yours and your sister’s. However, it would trigger capital gains taxes based on her cost basis ($60k), so run the numbers to see if it’s worth it.

Inherited IRA Strategy: If you inherit it as an IRA, you typically have 10 years to distribute the assets. You could keep it as rental income for 10 years, then distribute or reinvest the funds. This spreads the tax impact and keeps the investment growing tax-deferred.

Land Contract or Seller Financing: This could provide a steady income stream without the immediate tax hit of a full sale. It may also help to avoid dealing with setting up two separate accounts.

Combining IRAs or Alternative Custodians: Some custodians may offer more flexible or cost-effective ways to handle a 50/50 split or joint ownership. Check out specialized IRA custodians who handle complex inheritance scenarios.

Estate Planning Considerations: If your mother is open to it, establishing a trust that holds the property could provide more flexibility and potential tax advantages, depending on state laws.

You’re asking the right questions—consulting with a CPA and a tax attorney who understand both self-directed IRAs and estate planning would be a smart move. Would you like recommendations for custodians or professionals who specialize in this area?

Ashish Acharya · Answer

@Jen Ray You're dealing with a self-directed IRA rental through Equity Trust, subject to the SECURE Act's rule requiring inherited IRAs to be fully distributed within 10 years. Since the property is jointly inherited with your sister, each of you will need your own inherited IRA account, and managing real estate within two IRAs can be costly and complex, especially with ET's high fees.

You cannot transfer the property out of the IRA to heirs while your mother is alive. However, if she sells the property now within the IRA, there’s no capital gains tax (assuming it’s a Traditional IRA), and the proceeds can be reinvested into liquid assets. This simplifies inheritance and allows you and your sister to receive easily dividable, tax-deferred funds.

Selling after inheritance is possible, but it may trigger a tax hit if done during your higher-income years and complicate the 10-year distribution rule. A land contract sale within the IRA is an option but requires careful compliance and may trigger UBTI or UDFI. You might also consider switching to a custodian with better inherited IRA support and lower fees like Quest, Advanta, or Midland.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Patrick Roberts · Answer

You need to consult with someone who specializes in tax planning or wealth management/estate planning. If I understand correctly, the property is owned by your mother's traditional IRA. Usually, the property is an asset - no different than cash or stocks - that is held by the retirement account. I believe that when traditional IRA's pass to beneficiaries, the account holdings have to be distributed to the beneficiaries within ten years (which is typically classified as ordinary income). The normal tax scenarios - capital gains, depreciation, basis recapture, etc - are unlikely to apply. Basically, with traditional IRA's, any contributions are pre-tax, and anything that comes out of the account is taxed as ordinary income. That being said, this world is full of exceptions and exemptions. It's impossible to know for certain what youre facing without knowing all of the specifics of your situation.

I am not a tax professional, and there are any number of variables that will affect your specific outcome and make generalized advice either not applicable or even counterproductive. You really need to consult with an appropriately licensed professional if youre unable to answer this question on your own.

Equity Trust held rental... Transfer apon death options?

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