suggestions?: Transfer house in mom's trust to three of four children and give the fourth a buy-out sum?

[mh]

my mom passed away recently and the (paid off/ no mortgage) house in a trust is the only thing left to resolve amongst us 4 children.who are the equal beneficiaries. all her other liquid assets where distributed from her vanguard accounts via TOD designations.

My brother lived in the house with mom and the three of us (brother included) are fine keeping the house in some manner.

the fourth sibling would like to get "cashed out" for his share of the house. which my brother would supply to money for (approx 200k)

this is a southern california house that my parents bought in 1964, so my brother is not going to find a better housingdeal than this. this would mean he would have a 50% stake in the house and the other two siblings (myself and my sister) having 25%

we're are fine with that setup. my sister might move in there with him when she retires and i'm fine having my share tied up as partial owner.

so the big question is what is the best general way to execute this? the two things (A) how to setup the new 50/25/25 % ownership of the house for the three of us and (B) how my two brothers should do the transfer of the 200k equity to the cashout brother ?

i know this is long winded , but if someone has done something similar, your experience with it would be appreciated.

 

[Kings over Queens]

I've never done anything like that, but it seems like a simple quit claim deed would work. the brother who is buying the other brothers share and wants to remain might want a provision that he can live there in perpetuity.

your opening comment describes the house as being owned in a trust. do the trust documents discuss how the house is to be liquidated?

 

[Qs Laptop]

You need to talk to an attorney about the ownership issue. Maybe set up a new trust with the 3 remaining siblings as owners.

As to how the the cash-out sibling gets his money, I have no idea. Take out a mortgage on the house?

I'm not understanding how a house in southern California built in 1964 and apparently large enough to have had 2 adults and 4 children living in it is only worth $800K?

 

[Qs Laptop]

When my mother died my sister and I were the heirs of her house. My sister wanted to keep the house and rent it out. I was not going to become a landlord so I proposed she buy out my share. She couldn't do it. Thankfully, I sold the house for a good amount over the asking price (this was 2019) and there were no hard feelings.

 

[Kings over Queens]

As to how the the cash-out sibling gets his money, I have no idea. Take out a mortgage on the house?

Mortgage doesn't work in that arrangement.

The OP mentioned Mom's liquid assets were distributed, so potentially that and whatever cash the one brother might have.

 

[38Chevy454]

Is the 50% sibling going to pay rent to the other two 25% owners?

I do think the house needs transferred out of mother's trust. As to what type ownership, that seems good question for a real estate attorney familiar with California law.

 

[cathy63]

I'm not understanding how a house in southern California built in 1964 and apparently large enough to have had 2 adults and 4 children living in it is only worth $800K?

There are many 4br homes for sale in SoCal at that price. You won't get an ocean view for $800K, but you can get a decent sized house in a decent neighborhood. Zillow Search Results

 

[marko]

[Hitting my imaginary speed key] "Get an attorney".

 

[Qs Laptop]

There are many 4br homes for sale in SoCal at that price. You won't get an ocean view for $800K, but you can get a decent sized house in a decent neighborhood. Zillow Search Results

Sure, but the OP's profile says he's in Thousand Oaks, CA. I don't think there are may 4 BR homes in Thousand Oaks for $800K. I was assuming that's close to where the parent's house is located, though I could be wrong.

 

[Qs Laptop]

Mortgage doesn't work in that arrangement.

The OP mentioned Mom's liquid assets were distributed, so potentially that and whatever cash the one brother might have.

Yes, but surely a mortgage for $200K could be taken out against a property worth $800K that is unencumbered?

 

[mh]

thanks all for the comments so far. the house is in thousand oaks. but it's a fixer at this point. it's probably closer to 900k (zillow says it's 936k) i have to check with my sister what the appriasal was. i looked up the attorney that did my moms trust in the meantime and he's done this type of stuff many times so i'm getting with him. i'll make a short comment when it gets sorted. my brother has the cash/liquid equities from my mom's estate, but i don't know if it makes sense for him to use that vs a mortgage or whatnot or even if you can do that kind of thing for a partial ownership.

 

[RetMD21]

Not a Californian but how do you transfer the house and minimize the increase in property taxes

 

[mh]

Is the 50% sibling going to pay rent to the other two 25% owners?

I do think the house needs transferred out of mother's trust. As to what type ownership, that seems good question for a real estate attorney familiar with California law.

my mom made it known to me that she would like my brother to be able to live there if possible. so... we'll work something out. but we haven't come to details on that yet.

 

[mh]

Not a Californian but how do you transfer the house and minimize the increase in property taxes

there's a california provision for that. the gist of it is that if you are a child or spouse and the parent was living in the house within some window at the time of the death , you can get the property tax grandfathered in. i don't know if there are any catches in that. hence one reason for the lawyer

 

[Kings over Queens]

Yes, but surely a mortgage for $200K could be taken out against a property worth $800K that is unencumbered?

there are 3 owners but only 1 of them is responsible for the 200k. If I'm 1 of the 2 other owners I don't want to be responsible for that note. that's why I say it doesn't work in this case.

sure, they could work out an arrangement between themselves, but I traditional bank isn't going to work that kind of deal.

 

[Kings over Queens]

my mom made it known to me that she would like my brother to be able to live there if possible. so... we'll work something out. but we haven't come to details on that yet.

I think it's terrific that you are all working together on a path to honor your mom's wishes.

 

[mh]

[Hitting my imaginary speed key] "Get an attorney".

yes. i just thought i'd harvest some wisdom , if anyone had some before going to the lawyer

 

[Texas Proud]

What about putting the house in a partnership? It is then easy to adjust ownership ratios...

Heck, it might be easier to put it in before your one brother buys from the other... and easy trail..

 

[wolf]

Proposition 19. House is re-appraised to market value. If a child lives in the house, there is
a million dollar appraised property tax exemption. (if appraised value is $900K, you may be OK).
I think you have to apply withing 1 year, to get the 1 million dollar exemption.
Been a while, so check with estate lawyer or look up prop 19 on google. (California law).

 

[pb4uski]

my mom passed away recently and the (paid off/ no mortgage) house in a trust is the only thing left to resolve amongst us 4 children.who are the equal beneficiaries. all her other liquid assets where distributed from her vanguard accounts via TOD designations.

My brother lived in the house with mom and the three of us (brother included) are fine keeping the house in some manner.

the fourth sibling would like to get "cashed out" for his share of the house. which my brother would supply to money for (approx 200k)

this is a southern california house that my parents bought in 1964, so my brother is not going to find a better housingdeal than this. this would mean he would have a 50% stake in the house and the other two siblings (myself and my sister) having 25%

we're are fine with that setup. my sister might move in there with him when she retires and i'm fine having my share tied up as partial owner.

so the big question is what is the best general way to execute this? the two things (A) how to setup the new 50/25/25 % ownership of the house for the three of us and (B) how my two brothers should do the transfer of the 200k equity to the cashout brother ?

i know this is long winded , but if someone has done something similar, your experience with it would be appreciated.

We had a similiar situation with my Mom's house, a seasonal lakefront camp, that 5 of us were going to share use of it. We set up a LLC and the trust transferred the property to the LLC, so the LLC now owns the property and that we each own 20 or 100 units in the LLC. The LLC agreement provides "rules" for buyouts. I'm not sure if a setup like this would retain the favorable property tax profile... that's a lawyer question but we didn't have that issue.

You'll want to get a professional appraisal of the property as of your Mom's date of death to establish the stepped up basis in any event and that appraisal can be used as a guide to determine the sale price for the brother that wants to be cashed out which may be more or less than the $200k that y'all have in mind. It will a determine each of your cost basis in the property, including the brother that want's to be cashed out.

Your brother that lives there will have to come up with cash for 1/4 of the value of the house and pay it to the brother that want's out. Will he be able to do that?

Finally, irrespective of the form of ownership, you should have a lease with your brother (of with brother and sister if she moves in) that provides rent to at a minimum cover the direct costs of keeping the property (property taxes, insurance, maintenance, etc). In other words, you shouldn't have to pay for 25% of these costs and your brother gets to live there for just his 50% share of those costs.

 

[mh]

We had a similiar situation with my Mom's house, a seasonal lakefront camp, that 5 of us were going to share use of it. We set up a LLC and the trust transferred the property to the LLC, so the LLC now owns the property and that we each own 20 or 100 units in the LLC. The LLC agreement provides "rules" for buyouts. I'm not sure if a setup like this would retain the favorable property tax profile... that's a lawyer question but we didn't have that issue.

You'll want to get a professional appraisal of the property as of your Mom's date of death to establish the stepped up basis in any event and that appraisal can be used as a guide to determine the sale price for the brother that wants to be cashed out which may be more or less than the $200k that y'all have in mind. It will a determine each of your cost basis in the property, including the brother that want's to be cashed out.

Your brother that lives there will have to come up with cash for 1/4 of the value of the house and pay it to the brother that want's out. Will he be able to do that?

Finally, irrespective of the form of ownership, you should have a lease with your brother (of with brother and sister if she moves in) that provides rent to at a minimum cover the direct costs of keeping the property (property taxes, insurance, maintenance, etc). In other words, you shouldn't have to pay for 25% of these costs and your brother gets to live there for just his 50% share of those costs.

thanks for the response. it's been appraised ( my sister had it done ) it's between 800 and 900k i forget the exact amount. my brother is going to pay prop taxes , insurance , maint, etc. at least that's the plan as it stands now.