My father recently passed. My mom is 73 and owns a $900,000 beach home with a $175,000 HELOC. She would like her 3 children to take ownership of this home/loan now. She would live in the home for the rest of her life paying taxes and utilities. What is the best way to do this? Is a trust the best? If so, what type? What would the tax implications be for us? ( we live in NJ)
State/Country relating to question: New Jersey
Good morning. The issues are mainly tax and lender issues. Regarding the tax issue, if she gives it to you now, then you don't get the basis increased to its fair market value, but instead get her basis carried over to you. But, if she gives it to you at death, then the basis gets increased, but you are subject to NJ inheritance tax. NJ has no gift tax. Regarding the lender issue, because of the HELOC, any transfer is going to require the lender's consent.
With regard to the transfer itself, she can retain a life estate and transfer it to the children directly or into a trust or LLC. The trust or LLC work best because it would allow centralized management and majority vote rather than requiring the consent of all the owners for any material decision. I would recommend the LLC because it allows both while also giving the children the most control and flexibility.
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Okay. I understand the LLC recommendation with lender approval. If we decided on this option, would would there be vulnerabilities to personal law suits against one of the children? Would the family trust protect against personal financial issues ( one sibling has health issues)?
If the trust was set up as a spendthrift trust...which is a trust with a special provision designed to protect the trust assets from creditors....then the trust assets would not be at risk to any of the creditors of any beneficiary.
29 Years Practicing Law - Including Tax and Estate Planning
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