Legal Question in Real Estate Law in California
Avoid taxes in transer of property to familiy member
My mother died 12 years ago. At the time, my stepfathers name was on the title to her house, as well as hers. After her death, my stepfather placed the house into a living trust for my sister and myself.
We would now like to pull my sister's half of the equity out of the house, so she can purchase a primary residence. 100% of the title to the house would then go to me.
I am thinking my stepfather could quitclaim the house to my sister and myself. I would then take out a mortgage to pay her half of the equity. We would then remove her from the property with another quitclaim.
My question is does this avoid tax consequences? Is there a way, 12 years later, that this could be treated as an inheritance? Or does the fact that my stepfather currently is on the title prevent this from being treated as an inheritance?
1 Answer from Attorneys
Re: Avoid taxes in transer of property to familiy member
I assume from your question that the house belonged to mom and stepdad as joint tenants. After her death the house was his. His basis was stepped up at your mothers house on her 1/2 interest to the value of her interest at her death.
When stepdad transfered the house into a living trust, it is still his. You and your sister have no current interest in the house and will only have an interest if stepdad dies before changing the testamentary terms of the trust. If the two of you inherit the house after stepdad's death, you will be entitled to a stepped up basis to the value of the house at his death. If he transfers the house to you now, which he can do, it will be a "lifetime" gift. Your and your sister's basis will be the same as his basis.
It is apparent that you don't quite understand what has been done to this point.
As long as you stepdad is alive he can determine to leave the house to someone else, anyone else, by changing the terms of the trust.
Perhaps you should work with your stepdad, you and your sister and do a little estate planning with an attorney?
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