- The Washington Times - Wednesday, October 15, 2003

Q: My comatose mother is expected to die soon. She owns, in the name of her living trust, a home with a small mortgage. Her trust provides that my sister shall have the option to acquire the house, which my sister intends to exercise.

My Mom’s intent is that her three children essentially get equal shares of her estate. My sister will sell her current home, refinance Mom’s place and “pay off” her siblings as provided in the trust documents.

My sister has asked how her property taxes will be calculated and on what value. That’s just for starters. I expect there is a “best way” to do this, assuming there are any options at all. Is there anything we should do before Mom dies? I can’t even tell if the “right” professional is a lawyer, an accountant or a real estate professional.

A: First of all, you need to talk to all three of your listed professionals. I’m not an attorney, nor an accountant, and my urgent suggestion is that you talk to both — first with a top-notch estate-planning attorney. The fact that your mother had established a living trust demonstrates the importance with which she viewed these decisions for her and her family. You should view them with the same respect.

Imagine what kind of decisions and negotiating you would be doing with your siblings at this point if your mother had not established a living trust. The potential for broken relationships is astounding. Instead, your mother wrote down ahead of time, with the appropriate professionals, how she wanted her property disbursed and the proceeds shared. The decisions have been made already; you just need to make sure you carry them out with as little tax liability and legal hassle as possible.

Now, regarding the passing of the property from your mother to your sister: Be careful about that. Keep in mind that the laws regarding inheritance deal with the fact that the property is your mother’s at this time — not your sister’s. If your sister takes possession of the property, it’s no longer your mother’s. Thus, if she were to take possession, refinance and then pass money to you, you should ask your attorney and accountant if it’s still considered inheritance money from your mother, rather than a gift from your sister.

If it’s a gift from your sister, there would definitely be tax consequences. Nevertheless, once the house passes hands in an inheritance, the value for tax and capital gains purposes is the fair market value of the property at the time of the transfer.

For instance, if your mother bought the house for $150,000 20 years ago and sold the house before she died at $350,000, the basis would be the value of the home when she bought it years ago. If you and your sisters take possession, the basis would be the new value of $350,000.

Although the house is already owned by a living trust, you may also want to talk with the estate-planning attorney about using a qualified property residential trust (QPRT) to hold the property.

Findlaw.com gives a very good layman’s explanation of how a QPRT works:

“A Qualified Personal Residence Trust (commonly called a ‘QPRT’) is sometimes called a way in which you may give your home away and live in it, too. In reality, it is a way of transferring your home to another party (usually children) at a reduced transfer tax cost. … Under a QPRT, your home is transferred to the trust and you retain the right to live in the home for a specified period of time. At the end of the period, you may provide that the home be distributed to your children or to a trust for them.”

A QPRT, in essence, reduces the value of the overall estate, and, thus, the tax liability. The problem you may face is that your mother is already comatose and cannot legally sign for the trust. In addition, if she is at the brink of death, you may not be able to place such a short time limit on the trust. Again, talk with your attorney about your particulars.

For information, visit www.FindLaw.com and click the link on Real Estate, then search for “qualified property residential trust.”

M. Anthony Carr has written about real estate for more than 15 years. Contact him by e-mail ([email protected])

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