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Barrister
Barrister, Attorney
Category: Estate Law
Satisfied Customers: 36222
Experience:  16 yrs estate law, real estate. Wills/Trusts/Probate
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I lost my mother in February 2015. She left her house to my

Customer Question

I lost my mother in February 2015. She left her house to my sister and I in her last will and testament and we are currently in probate. My sister (the executrix) wants to buy my half of the house (she is currently living in the house) and I want her to do that. Lender wants to do a refinance after the probate closes but my sister and I want her to get a loan and put the proceeds in the probate account prior to close of probate to be disbursed at close of probate. She wants to do this as well as she wants to retain the pre-prop 13 real estate tax benefit by doing this a family transfer. One of my concerns is that I will owe income taxes on this amount to the IRS and the state of California. If we do it the way the lender wants does it cease to be a family transfer and becomes a taxable income to me? The lender wants me to quit claim my interest in the house to my sister prior to closing probate so that she can obtain the loan so that it guarantees them clear title. This leaves me somewhat exposed. I trust her to pay me and we have discussed this at length. We don't want to do anything illegal but we want to insure that we both benefit by the transaction. This is the only thing preventing us from closing probate. The house was worth, at the time of mom's death, about $240,000. My half would be $120,000.
Submitted: 1 year ago.
Category: Estate Law
Expert:  Barrister replied 1 year ago.

Hello and welcome! My name is ***** ***** I will try my level best to help with your situation or get you to someone who can.

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Here is the problem I see... If the house is transferred out of the estate to you both and then you transfer your interest to her, it will trigger a reassessment because a sibling to sibling transfer is not exempt from reassessment. Only a transfer from parent to child is exempt.

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So the only way I see this possibly working is if the executor of the estate sells the house to sister and then divides the money between both of you. And this can only occur if the will states that the house is to be sold and the proceeds divided, not that the house just is to transfer to you both.

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Unless the will states that the house is to be sold, then I think you are stuck here and half the value of the house will be subject to reassessment.

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The only other way that this could work would be if you trusted your sister to pay you half of the value of the house and you then disclaimed your interest in the estate so that she was the sole one who inherited the house. You would then have to trust her to pay you half the value of it once she refinanced or took out her own loan...

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But you won't owe any income taxes because an inheritance is not considered income and you receive it at the current fair market value as of mother's passing. So if that is $240K, then if you sell your half for $120K, that is tax free to you because your "basis" (i.e. cost) in the house is half the $240K fair market value.

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thanks

Barrister

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