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Message
Best Way to Transfer Real Estate to Heirs
Posted on 8/17/23 at 3:25 pm
Posted on 8/17/23 at 3:25 pm
My wife’s grandmother own’s a rural property situated on an old quarry lake in Louisiana. She and her late husband acquired the property in the mid 1960’s as a place to get away from the city and enjoy the fresh air. It’s a very special property to us and will remain in the family for as long as any of us have the means to keep it.
The issue is that her grandmother is getting up in age and intends for the property to go to my wife and her siblings (4 total) upon her passing but recently she’s expressed a desire to remove herself from any liability that ownership of the property represents for her. My question is this. What’s the best way to transfer ownership of the property to the 4 siblings so as to minimize the tax burden to all parties?
My uneducated feeling is that she could set up a trust and assign them as the beneficiaries. Would this work? If so, what sort of tax liability would there be on something like this?
Another idea I had was for her to transfer the property to an LLC which all of the heirs are shareholders of.
Either way, I’m assuming that making the transfer before her passing is better than inheriting it and paying taxes on the current value?
Thanks in advance.
The issue is that her grandmother is getting up in age and intends for the property to go to my wife and her siblings (4 total) upon her passing but recently she’s expressed a desire to remove herself from any liability that ownership of the property represents for her. My question is this. What’s the best way to transfer ownership of the property to the 4 siblings so as to minimize the tax burden to all parties?
My uneducated feeling is that she could set up a trust and assign them as the beneficiaries. Would this work? If so, what sort of tax liability would there be on something like this?
Another idea I had was for her to transfer the property to an LLC which all of the heirs are shareholders of.
Either way, I’m assuming that making the transfer before her passing is better than inheriting it and paying taxes on the current value?
Thanks in advance.
This post was edited on 8/17/23 at 3:27 pm
7
Posted on 8/17/23 at 3:34 pm to BillyGibbons
If your concern is to minimize the tax burden, if she would pass away and the property gets inherited, the heirs or legatees get a stepped up tax basis based on the value at the time of the death which will save them capital gains taxes if the heirs sell the property. Donated property does not get that benefit. From that standpoint it is better to let the property get inherited.
Posted on 8/17/23 at 3:35 pm to BillyGibbons
I'm going assume there is no concern with the grandmother having a large enough estate to be subject to estate taxation. But if the land is very valuable and she has substantial other assets, this could be wrong. Remember that estate tax lifetime exclusion will be nearly cut in half in Jan. 1 2026 as it stands today.
It sounds like you believe the property has appreciated substantially since it was purchased. How long ago did her husband pass? Has it appreciated substantially since then?
This property would get a step-up in basis at her passing. If her Will designates the property goes to those 4 grandkids, then it will pass to them without tax consequence. If she is concerned about liability, form a LLC and put the property in it.
It sounds like you believe the property has appreciated substantially since it was purchased. How long ago did her husband pass? Has it appreciated substantially since then?
This property would get a step-up in basis at her passing. If her Will designates the property goes to those 4 grandkids, then it will pass to them without tax consequence. If she is concerned about liability, form a LLC and put the property in it.
This post was edited on 8/17/23 at 3:38 pm
Posted on 8/17/23 at 3:39 pm to BillyGibbons
Also weigh the likelyhood of the heirs to bitch and moan over things. Sometimes it's better, even if not financially better, to sell and just have cash to divide up.
I've seen families torn apart from decisions of an executor of an estate to pick something the others don't agree with regarding the sale of RE.
I've seen families torn apart from decisions of an executor of an estate to pick something the others don't agree with regarding the sale of RE.
This post was edited on 8/17/23 at 5:11 pm
Posted on 8/17/23 at 3:52 pm to BillyGibbons
Quitclaim deed
Posted on 8/17/23 at 4:45 pm to leeman101
quote:
Quitclaim deed
Absoloutely freaking not.
Several posters (not the one I am replying to) have good answers but they need to be put together.
If the proeprty is sold, the gain is selling price less tax basis. Being the proeprty is in LA, and LA being a community property state, it is likely the tax basis "stepped up" from the 1960s cost to the FMV at the date of grandpa's passing.
If the heirs receive the property via inheritance, there will be an additional step up to the basis, as of grandma's future passing.
I understand you have no intention of selling it now, but hey, things happen.
If liability is a concern, consider having grandma drop the property into an LLC, then have grandma gift say 1% of the LLC to each of her children.
This will require a "zero" partnership return to be filed each year.
Then when grandma dies, the children will inherit her partnership interest. Then can then do what's called a 754 election to essentially get the step up.
All of this is complex and you should use an attorney and a CPA. The easiest thing to do would be for grandma to not worry about the legal liability (or to buy a umbrella policy) and let the property transfer via succession to the kids.
Posted on 8/17/23 at 7:27 pm to LSUFanHouston
The best way - come to the TD Money Board instead of an attorney or CPA of course!!! Hahahah
Posted on 8/17/23 at 8:58 pm to Im4datigers
quote:
The best way - come to the TD Money Board instead of an attorney or CPA of course!!! Hahahah
I don’t know why people say this. I’m fairly certain the only ones that do either never use a professional and don’t understand that all professionals are not perfect or all knowing, or are professionals full of themselves. The fact is there’s a lot of benefit to posting situations online and then taking the notes to a professional for additional advice.
Op, I would strongly consider whether or not all 4 want and can afford an equal share. Many times it’s much better to split an estate by giving real estate or other items to a single member and cash or other assets as fair as possible.
There’s few things that will tear a family apart faster than inherited family property. It may be beneficial to even consider paying someone off outside of the inheritance.
This post was edited on 8/17/23 at 8:59 pm
Posted on 8/17/23 at 9:00 pm to BillyGibbons
Living Trust
Posted on 8/17/23 at 9:40 pm to SalE
quote:
I don’t know why people say this. I’m fairly certain the only ones that do either never use a professional and don’t understand that all professionals are not perfect or all knowing, or are professionals full of themselves. The fact is there’s a lot of benefit to posting situations online and then taking the notes to a professional for additional advice.
Because it’s a joke Karen, lighten up. Thus the hahaha behind it. I was making fun of the people that post that shite all the time (mostly in the OT)
Posted on 8/18/23 at 8:54 am to baldona
quote:
There’s few things that will tear a family apart faster than inherited family property. It may be beneficial to even consider paying someone off outside of the inheritance.
^^This^^
When the property ownership gets diluted with multiple owners it can complicate things. Many developers have had to get multiple releases on a property that has been passed down from generation to generation making it a nightmare at times. I've seen this with family farms later to be developed into a subdivision or something else.
This post was edited on 8/18/23 at 8:57 am
Posted on 8/18/23 at 9:31 am to BillyGibbons
lsufanhouston had the best answer in here. but i would consider the relative value of this property as you dig into this. people with minimal assets spend way too much time stressing over tax consequences and liability. if this is like a $200k property, it is probably not worth getting a tax attorney involved. a basic will would get 90% of what you want to accomplish without all the fuss. if grandma is bumping up against the estate tax exclusion, then i'd recommend an attorney with an LLM to start handling the estate now.
Posted on 8/18/23 at 3:04 pm to geauxpurple
Question about a step up in basis - does an appraisal have to get done at the time of her passing / inheritance? Or is the onus on the new owner at some unspecified time in the future to go back and prove what the property was worth when inherited?
Posted on 8/18/23 at 5:20 pm to BillyGibbons
Private mortgage to the 4 where they buy it and she forgives payments under the $17k annual exemption
Posted on 8/18/23 at 7:51 pm to thelawnwranglers
You four buy a large liability and umbrella policy and it transfers @ her death.
Posted on 8/21/23 at 9:37 am to LSUFanHouston
quote:
If liability is a concern, consider having grandma drop the property into an LLC, then have grandma gift say 1% of the LLC to each of her children.
Why the gift of 1% to children? Only need to do this if estate taxes are a concern and want to discount value remaining in grandma's hands.
Single member LLC 100% owned by grandma = no separate tax return, full step up at death
Posted on 8/21/23 at 10:11 am to texn
quote:
Single member LLC 100% owned by grandma = no separate tax return, full step up at death
Need a 1065 to make the 754 election.
Posted on 8/21/23 at 10:12 am to 7flat
quote:
Question about a step up in basis - does an appraisal have to get done at the time of her passing / inheritance? Or is the onus on the new owner at some unspecified time in the future to go back and prove what the property was worth when inherited?
When you file the list of assets as part of succession, you will need a FMV at date of death, so might as well get the appraisal done then.
Posted on 8/21/23 at 1:44 pm to LSUFanHouston
quote:
Need a 1065 to make the 754 election.
This makes no sense to me...single member LLC = disregarded entity. Heirs get stepped up basis...don't have to worry about inside/outside basis, 754 election, etc.
Posted on 8/21/23 at 4:08 pm to LSUFanHouston
quote:
Need a 1065 to make the 754 election.
Don’t really see how that’s relevant.
You only need a 754 if you’re in a partnership. Otherwise you just get the step up on the partnership interests and you don’t get benefit inside the partnership.
But if the asset is outside a partnership then you don’t run into an issue where you need a 754.
This post was edited on 8/21/23 at 4:16 pm
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