Thank you for your follow-up.
I will be happy to address the other questions for you:
An additional complication is that we were told that since she has a life estate and enjoys all the benefits of ownership short of selling the house, that we shouldn't change the title until she dies. Thus, it's still in my Dad's name. I now know that we had 3 years from his death to change it and that if we change it now, they'll re-assess it to current market value. We're 5 years past the deadline and a tax advisor told me that if we go ahead and change the title into the name of the trust, as it should be, that the house will be liable for current market assessment for the 5 delinquent years, but then they should take it back down to our grandfathered rate we rightfully should have inherited from my parents. Any opinions?
The tax advisor is correct--if you do transfer it today, ti will be assessed at today's market rates (which, as the rates dropped, may even be a net benefit).
Also, there's an issue of whether my dad had the right to give her a full life estate in the first place. My mom and dad both had 50% ownership of the family trust which owned the house and all assets. When mom died, her half went into the family trust, not to my dad. He subsequently granted a life estate to his new wife through his pre-nuptial with her in a house he only had 50% ownership of.
That is still a legitimate transfer, if he was the trustee of the estate. If he had full rights to utilize the property, even if it was in trust, such a transfer would be upheld by the courts.
I am sorry.