Legal Question in Real Estate Law in California

Re: Alternatives for purchasing 1/2 home

You can direct that upon your death the Trustee borrow half of the then value of the home and give it to one daughter, and transfer the home subject to the loan to the other daughter. There are lots of options,but you will want to brainstorm this one with your two daughters.

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Re: Alternatives for purchasing 1/2 home

This is a good question, and a tough one. Perhaps it should be re-asked under a LawGuru heading such as "wills, trusts and estates" or the like, because while the questions does address real property, attorneys whose daily practice involves estate planning are more likely to have come in frequent contact with this problem.

Having said that, I'll make a couple of novice comments from the standpoint of a real estate guy.

First, a single unit of real estate can theoretically be divided in several ways. The obvious one is by physical subdivision. That probably isn't going to be permissible in 95401 or any other mostly-urban area due to the Subdivision Map Act and the general impracticality of splitting a developed urban parcel into two tracts of equal value.

A second way of splitting a parcel is to divide the ownership in time by giving one heir a life estate and the other the remainder. This could work if the daughters are far apart in age and the elder wants the home now. This is probably unnecessarily tricky. Another way is to split out the mineral rights from the surface rights, but this is 95401, not Texas in 1920.

Here's another possibility: If the house were worth $800,000 and fully paid for, borrow out $400,000 or so, invest it in a way that covers your actual after-tax interest costs (if you can!), and leave the house to the daughter that wants it and the cash or investments to the other. So, each gets gifts worth about $400K net. This idea does not seem, at first, to have any harmful tax consequences. The details would, obviously, require very careful pre-planning. Under California's Probate Code, property subject to a mortgage incurred by the decedent passes to the heir subject to the mortgage, and there is no right to require "exoneration" of the debt from other estate assets.

Unless you are in poor health now, keep in mind that you are making a present-day guess about property values, investment results, heirs' desires, interest rates and your own future needs that looks decades into the future. Any plan you set up today should be (a) revocable, and (b) monitored for changes that are needed based upon future events such as grandchildren, inflation, possible remarriage, and on and on.