Q: My mother is 85 and in reasonably good health. I have a sister who lives with her.
My sister does not work. Mom wants to leave the house to her three children. My sister will never leave the house, has no money and has an attitude. Upon Mom’s passing I can see a real sticky situation with the house.
I don’t want a fight. What would you recommend? What are the tax implications of inheriting the property because I know she could not afford to pay the inheritance taxes?
A: Let’s start with the easy part of your question: Inheritance taxes.
There probably wouldn’t be any inheritance taxes on the transfer of this property. Even if Congress doesn’t fix the estate tax, your mother would still be able to leave $1 million tax free to her heirs.
If she has assets that exceed that number, you should find a good estate attorney and work on setting up some ways to transfer that money. Possible options include setting up trusts and making cash gifts now to you and your siblings, and contributing to any grandchild’s 529 college savings plan.
But I’m guessing your mother doesn’t have that kind of cash. It sounds as though she probably has the house and maybe a small bank account or two. And, yes, you will have some problems.
Ideally, your mother would put the house in a trust and name her heirs as the beneficiary of the trust. After she dies, the house would bypass probate and transfer directly into your name and your sister’s name. At that point, her trust could instruct the trustee of the trust to sell the house and pay any proceeds evenly between the children.
Otherwise, if all three of you end up owning the home, you’ll have to see if your sister is willing to sell the house or buy your share from you. You can also just continue to let your sister live in the house, as long as she pays the ongoing expenses. When the house ultimately sells, you’ll get your share of the value at the date of sale.
However, as I have written in many stories over the years, there always seems to be problems in these arrangements.
The reality of how this plays out will depend on your sister’s state of mind at the time your mom dies. If she feels like she’s losing her home, livelihood, and mom all at once, she could be quite fragile and difficult.
You should have a heart-to-heart conversation with your mom now, so you understand what is going to happen and if any plans have been made. If your mother hasn’t yet written a will or put other actions into motion that would affect the title to the property after her death, now would be a good time to set things up.
If your mother expresses her wishes today and you are able to discuss everything now, you can document what she wants to do and hope there are no issues later on. Be prepared to find out that your mom transferred ownership of the house years ago to your sister in exchange for taking care of her.
Still, it’s better to find that out now than have an extremely unpleasant conversation after the funeral.
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