How to readjust the fractional ownership of a house?
February 28, 2010 2:11 PM Subscribe
I am in a situation where % ownership of a house needs to be changed as a result of big life changes. We would like to do this without doing an actual sale among ourselves, but with the goal of selling the house and dividing the proceeds as we see fair, without paying big taxes. You are not my accountant, but maybe you can tell me at least what kind of an accountant I need?
Thanks for clicking. Here is the situation: my mother purchased a house with her unmarried partner some years back. She has since passed away. Myself and my sister are the only two surviving beneficiaries, and are just about finished with the probate process. Legally, at the conclusion of probate, my mother's partner will own 50% of the house, and my sister and I will jointly own the other 50%. My mother died without a will, so this is more or less the default outcome in my state (WA).
The truth of the matter is that while the house was purchased jointly by my mother and her partner, she put most of the down payment, and paid most of the mortgage. My sister, myself and her partner talked about this, and agreed that it would be fair to divide the house ownership into three parcels of 33% each. There is no controversy among us about this - we all feel that this is the proper thing to do.
In not-too-distant future we would like to sell the house and divide up the proceeds. If the % ownership does not change, the only way for my mother's partner to transfer money from his (legal) 50% share to us seems to be to make a gift - and incur gift taxes on it. The amount of money thus transferred would be on the order of $80,000 total - far above the annual tax-free gift limits.
What I am wondering instead is whether there is a provision to rewrite the house title such that all of us own 33.3% of the house, and then when the sale happens we can all collect 1/3 of the proceeds normally. Is this possible? I am not looking for anything shady here - we just want to fairly divide what is left of my late mother's estate and move on. I imagine I will need an accountant's help with this, but would appreciate at least some pointers to terms I should know, or a specific accountant type I should look for. My probate lawyer is at a loss as to whom I should talk to. Any suggestions from the crowed here would be much appreciated.
Thanks for clicking. Here is the situation: my mother purchased a house with her unmarried partner some years back. She has since passed away. Myself and my sister are the only two surviving beneficiaries, and are just about finished with the probate process. Legally, at the conclusion of probate, my mother's partner will own 50% of the house, and my sister and I will jointly own the other 50%. My mother died without a will, so this is more or less the default outcome in my state (WA).
The truth of the matter is that while the house was purchased jointly by my mother and her partner, she put most of the down payment, and paid most of the mortgage. My sister, myself and her partner talked about this, and agreed that it would be fair to divide the house ownership into three parcels of 33% each. There is no controversy among us about this - we all feel that this is the proper thing to do.
In not-too-distant future we would like to sell the house and divide up the proceeds. If the % ownership does not change, the only way for my mother's partner to transfer money from his (legal) 50% share to us seems to be to make a gift - and incur gift taxes on it. The amount of money thus transferred would be on the order of $80,000 total - far above the annual tax-free gift limits.
What I am wondering instead is whether there is a provision to rewrite the house title such that all of us own 33.3% of the house, and then when the sale happens we can all collect 1/3 of the proceeds normally. Is this possible? I am not looking for anything shady here - we just want to fairly divide what is left of my late mother's estate and move on. I imagine I will need an accountant's help with this, but would appreciate at least some pointers to terms I should know, or a specific accountant type I should look for. My probate lawyer is at a loss as to whom I should talk to. Any suggestions from the crowed here would be much appreciated.
I am not in Washington, I'm in New York state, but I'd think that you should talk to a real estate attorney about settling this up. It seems like you should just be able to do a quit claim deed to change the ownership percentage.
posted by Lucinda at 2:21 PM on February 28, 2010
posted by Lucinda at 2:21 PM on February 28, 2010
IANAL. This is similar to the way property is transferred in a divorce. I believe the partner can choose to accept less than he is legally entitled to. I think you'll need someone to help write up the new deed, along with filing probate. The better prepared you are, the less lawyer time you'll need, but you'll need some lawyer time.
posted by theora55 at 2:23 PM on February 28, 2010
posted by theora55 at 2:23 PM on February 28, 2010
The amount of money thus transferred would be on the order of $80,000 total - far above the annual tax-free gift limits.
Yeah, uh, is this guy extremely rich? Because he doesn't actually have to pay taxes on gifts above the annual limit, he just has to use part of his lifetime exemption. Which is like a million dollars.
So is this guy planning on giving gifts worth over a million dollars... over and above the annual exemption? Because unless he is, he still won't have to pay any taxes.
posted by Justinian at 2:38 PM on February 28, 2010
Yeah, uh, is this guy extremely rich? Because he doesn't actually have to pay taxes on gifts above the annual limit, he just has to use part of his lifetime exemption. Which is like a million dollars.
So is this guy planning on giving gifts worth over a million dollars... over and above the annual exemption? Because unless he is, he still won't have to pay any taxes.
posted by Justinian at 2:38 PM on February 28, 2010
IANAL but I believe that if probate is not settled yet, the partner can waive 16% of his share in the house, give it back to the estate which when then distribute it to the other beneficiaries according the probate rules. In this case, the extra shares would be distributed equally between you and your sister. If you can do this before probate settles then you will each have the proper share and the proper cost basis and you don't have to worry about the transfer triggering gift tax on the partner for the value of what he is giving you.
Are you working with a probate attorney or doing it yourself? As i understand it, this should be pretty simple for a probate attorney set up.
BTW, It is wonderful to hear about family including an unmarried partner that is able to agree on what is fair without acrimony after the death of a loved one.
posted by metahawk at 2:40 PM on February 28, 2010
Are you working with a probate attorney or doing it yourself? As i understand it, this should be pretty simple for a probate attorney set up.
BTW, It is wonderful to hear about family including an unmarried partner that is able to agree on what is fair without acrimony after the death of a loved one.
posted by metahawk at 2:40 PM on February 28, 2010
Oh, but I agree with the others. If you want to go that route I'm sure a probate lawyer would be able to come up with some way where this person only receives 33% of the house instead of 50%. It's not like you are forced to accept an inheritance. But some kind of probate lawyer would absolutely need to advise you about that.
As I said, though, unless this person has millions in assets and intends to gift it, you don't actually pay taxes on gifts over the annual limit since you have a quite large lifetime exemption.
posted by Justinian at 2:42 PM on February 28, 2010
As I said, though, unless this person has millions in assets and intends to gift it, you don't actually pay taxes on gifts over the annual limit since you have a quite large lifetime exemption.
posted by Justinian at 2:42 PM on February 28, 2010
Definitely an issue for a lawyer, since you'll need one anyway to complete the deal, whatever it is. I'm surprised the probate attorney can't figure out a way for this to happen.
It does seem like the best way to handle it would be for the probate court to award you each 33%. You each petition the court for that outcome, and I don't see why the court wouldn't do it.
You can't split it up before that, because "the estate of..." owns it.
So the other option is to split it later. It may end up being easier than you think, depending on how the ownership paperwork is drawn up post-probate. I don't know if deeds even show partial ownerships as a percentage...? If they don't, then just sell it and split it.
If they DO show percentages, however, it oughtn't matter whether you transfer the percentage of ownership pre-sale or post-sale. Either way, he would be transferring something of value to you, which somebody would have to pay tax on.
posted by gjc at 2:47 PM on February 28, 2010
It does seem like the best way to handle it would be for the probate court to award you each 33%. You each petition the court for that outcome, and I don't see why the court wouldn't do it.
You can't split it up before that, because "the estate of..." owns it.
So the other option is to split it later. It may end up being easier than you think, depending on how the ownership paperwork is drawn up post-probate. I don't know if deeds even show partial ownerships as a percentage...? If they don't, then just sell it and split it.
If they DO show percentages, however, it oughtn't matter whether you transfer the percentage of ownership pre-sale or post-sale. Either way, he would be transferring something of value to you, which somebody would have to pay tax on.
posted by gjc at 2:47 PM on February 28, 2010
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You would need to speak, firstly, with a real estate attorney to see if your idea is even feasible. I don't know why your probate lawyer thinks an accountant would be the first person to speak with. The title for the property would have to be changed to one-third shares.
I don't know if this is possible.
posted by dfriedman at 2:20 PM on February 28, 2010 [1 favorite]