You have seen the movie where the patriarch dies, leaving his estate to the caregiver while the siblings fight it out.
Or, the trust fund son who has lived off daddy's money suddenly is cut off and needs to look for a job.
Then there are the siblings at the attorney's office listening to the reading of the will who are not getting what they expected and start throwing punches.
These scenarios make for provocative storylines but maybe too extreme in the real world. Or are they?
Over the years, I have consulted with clients who inherited real estate, are the executor, or are dealing with their family fighting over who gets what.
Sell the dump and dump the vacation home
Tony and his sister Sarah inherited three properties when their father passed. Sarah is living in the father's principal residence rent-free because she was the caregiver. The second home was a vacation home in Northern California. The third was a trashed vacant rental and is close to foreclosure because Sarah was not paying the mortgage.
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Unfortunately, I often see one sibling not following through with their duties and making the probate process difficult for everyone. Tony and Sarah's father died intestate, without a will or trust. Hence, the courts divided everything equally between the two siblings.
Tony lived in the Bay Area while Sarah lived by the two properties. Still, she was not doing her job as a caregiver and did not pay any bills or care for the properties. For Tony, owning a property with Sarah was not an option.
Asking me for advice, Tony agreed the best scenario was for Sarah to receive the principal residence. He would take the rental and vacation home. He quickly found a buyer who was a contractor who purchased the vacant rental days before the auction. He thought about keeping the vacation home but has no desire to vacation or live in Northern California, so he sold that property.
We are retired; maybe we should be landlords?
Martha is the trustee and executor of her father's trust. She has a brother, John, and a husband, Jerry. The estate includes a rental property over an hour from Martha's home, a vacation home in a ski area, and an estate home locally.
The trust split everything equally between the two siblings. However, Martha quickly realized she does not want to own real estate with John and essentially be in business with him as a landlord. John made it clear he prefers the cash, so Martha and Jerry considered buying John's share and becoming landlords.
Owning investment real estate can often seem the profitable thing to do. However, one needs to take into consideration their current life circumstances. It soon became apparent for Martha and Jerry owning investment real estate is not the best option as they desired to focus on their family and volunteering.
The convincing factor for them is the step-up in basis Martha and John will receive by inheriting their father's property. An appraisal showing the value at the time of the father's death is obtained, so when sold, the capital gains tax is paid only on the amount over the appraised values. Therefore, their taxes will be negligible. They can then split the proceeds and use their inheritance as they desire.
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