My question involves real estate located in the State of: California
Note: There is some overlap here with landlord/tenant issues. Moderator, please let me know if I should post there instead.
Apologies for the long post, but this situation takes some time to explain.
We have a unique situation with possibly inheriting a property and I’m looking for second opinions on the notes our lawyer gave us prior to meeting with him again.
Here is the situation. My parents own a number of houses. One of them is in a really good school district, and they have suggested that we move in there when our daughter is school age since we’d inherit the house anyways.
In theory, this sounds great. We can rent out our current home for a secondary income while moving into a house with a nicer neighborhood, maybe even use the rental income to remodel the home.
However, they did not mean to transfer the deed to us right now. They wanted to maintain it, then do a transfer-upon-death deed in order to maintain the property tax base while achieving a capital gains step-up value. During that period, they suggested that we just “live there.” This feels too gray area for us.
My wife and I are thinking worst-case-scenarios here, especially with a brother who is a bit unscrupulous. Our concern is that my brother comes in and tries to manipulate the property away from my parents while we are living there -- or even lobby them to change the will without telling us. He’s kind of a manipulative jerk like that, and I wouldn’t necessarily put it past him.
Our lawyer said the cleanest, simplest way to protect ourselves is to request that we do a deed transfer in a way that maintains property tax base. But this would forego any capital gains step-up benefit. He said that it’s a trade-off -- peace of mind vs. potential value upon eventual say. My folks are super into being tax advantageous and frown upon this.
Our lawyer said that the next best thing if my parents refuse to do that and stick with original inheritance/”live there” plan is to get a rental agreement in paper. He said you can basically go any term, any cost, even if it’s just $1/year. He said that property law tends to favor the tenant in a dispute, as in “it’s the landlord’s own fault for signing a dumb deal.” He said that in theory, the brother COULD claim some right to it and take it to court, though a contract is a contract and since he’s not the owner, it wouldn’t stand. The only vulnerability is if he convinced my parents to not renew the lease (he suggested signing a LONG lease to ensure our daughter’s school stability or a lifetime lease to protect against that). The other vulnerable area is if my brother convinced my parents to change the inheritance plan after we’ve moved in and settled our daughter into our school (he said there are no real guarantees against that that he could think of -- but are there? I mean, you can’t lock someone in to prevent changing a transfer-upon-death deed, right?)
So, we’re looking for a second opinion about this situation before we talk with our lawyer again next week.
Here’s another question: pretend there was no unscrupulous brother. Are there any legal reasons to choose the direct transfer method over the inheritance/”live there” method?
In a perfect world, I definitely see the benefits of the inheritance/”live there” method because of the capital gains step-up. But my brother is a big-enough concern that our family’s stability becomes more valued, so much so that we are considering saying “thanks but no thanks” if they won’t do a direct transfer.
Thanks so much for providing input on our weird situation. I know some people would do anything to even have this option, so we definitely understand the magnitude of this -- it's just really hard when you factor in a shifty brother who can con the parents out of anything.
Note: There is some overlap here with landlord/tenant issues. Moderator, please let me know if I should post there instead.
Apologies for the long post, but this situation takes some time to explain.
We have a unique situation with possibly inheriting a property and I’m looking for second opinions on the notes our lawyer gave us prior to meeting with him again.
Here is the situation. My parents own a number of houses. One of them is in a really good school district, and they have suggested that we move in there when our daughter is school age since we’d inherit the house anyways.
In theory, this sounds great. We can rent out our current home for a secondary income while moving into a house with a nicer neighborhood, maybe even use the rental income to remodel the home.
However, they did not mean to transfer the deed to us right now. They wanted to maintain it, then do a transfer-upon-death deed in order to maintain the property tax base while achieving a capital gains step-up value. During that period, they suggested that we just “live there.” This feels too gray area for us.
My wife and I are thinking worst-case-scenarios here, especially with a brother who is a bit unscrupulous. Our concern is that my brother comes in and tries to manipulate the property away from my parents while we are living there -- or even lobby them to change the will without telling us. He’s kind of a manipulative jerk like that, and I wouldn’t necessarily put it past him.
Our lawyer said the cleanest, simplest way to protect ourselves is to request that we do a deed transfer in a way that maintains property tax base. But this would forego any capital gains step-up benefit. He said that it’s a trade-off -- peace of mind vs. potential value upon eventual say. My folks are super into being tax advantageous and frown upon this.
Our lawyer said that the next best thing if my parents refuse to do that and stick with original inheritance/”live there” plan is to get a rental agreement in paper. He said you can basically go any term, any cost, even if it’s just $1/year. He said that property law tends to favor the tenant in a dispute, as in “it’s the landlord’s own fault for signing a dumb deal.” He said that in theory, the brother COULD claim some right to it and take it to court, though a contract is a contract and since he’s not the owner, it wouldn’t stand. The only vulnerability is if he convinced my parents to not renew the lease (he suggested signing a LONG lease to ensure our daughter’s school stability or a lifetime lease to protect against that). The other vulnerable area is if my brother convinced my parents to change the inheritance plan after we’ve moved in and settled our daughter into our school (he said there are no real guarantees against that that he could think of -- but are there? I mean, you can’t lock someone in to prevent changing a transfer-upon-death deed, right?)
So, we’re looking for a second opinion about this situation before we talk with our lawyer again next week.
Here’s another question: pretend there was no unscrupulous brother. Are there any legal reasons to choose the direct transfer method over the inheritance/”live there” method?
In a perfect world, I definitely see the benefits of the inheritance/”live there” method because of the capital gains step-up. But my brother is a big-enough concern that our family’s stability becomes more valued, so much so that we are considering saying “thanks but no thanks” if they won’t do a direct transfer.
Thanks so much for providing input on our weird situation. I know some people would do anything to even have this option, so we definitely understand the magnitude of this -- it's just really hard when you factor in a shifty brother who can con the parents out of anything.
Sticky Early Inheritance Situation: Direct Deed Transfer vs. "Just Live There"
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