Consider these things when property is sold to member of the family
Q: My mother is in a memory care facility with dementia. To pay for her care, my sister, brother and I sold her homestead and furnishings. Mom also owns a lake house valued at $150,000. One of the grandchildren would like to purchase this property but is afraid doing so would cause my mom to owe capital gains tax. What should we do?
A: It doesn't matter whether a grandchild or some other totally unrelated person buys the lake house. Your mother will still have a gain on the sale if the net selling price exceeds her basis in the property.
If everyone in the family is in agreement that the grandchild is paying a fair market price for the house, then the sale can proceed. You should hire a real estate attorney to handle all the paperwork. If the grandchild is borrowing money from a bank or other lender, then the sale will probably need to be handled by a title company, which will add to the costs of sale, but it will be better for the grandchild making the purchase.
If the sale to the grandchild is for less than fair market value, then the difference between the price paid and the fair market value of the house is treated as a gift from your mother to the grandchild. Your mother would not owe any gift tax, but she would probably be required to file a gift tax return if the gift exceeds $15,000.
Q: In a recent column you stated that the beneficiary of the Transfer on Death Deed might need to wait two years after the death of the owner before the house can be sold. I read all the information that came with the paperwork for executing this form, and that was not mentioned. Shouldn’t the two-year wait have been included in the instructions?
A: If a form is created for the public to use without an attorney, and there are accompanying instructions for its use, it would be useful for the instructions to come with appropriate warnings.
However, there actually are no longer any instructions for the form because there isn't even a statutory form. Both the form and the accompanying instructions were repealed a year ago, and the Texas Supreme Court was directed by the Texas Legislature to create a new form.
It will likely be years before such a form is created and made available to the public.
Q: In my will, I named my sister as executor. I want to change that to make my daughter the executor. Do I have to redo my entire will to make this change, or can I just put something in writing and attach it to my will? If so, does the change need to be notarized? A: The change can be made in a codicil, which is an amendment to your will. You can write it out by hand and date and sign it, but that's not a good idea because it will cause problems for your daughter when she probates your will.
It would be better to hire a lawyer and have the codicil prepared properly.
The information in this column is intended to provide a general understanding of the law, not legal advice. Readers with legal problems, including those whose questions are addressed here, should consult attorneys for advice on their particular circumstances. Ronald Lipman of the Houston law firm Lipman & Associates is board-certified in estate planning and probate law by the Texas Board of Legal Specialization. Email questions to stateyourcase @lipmanpc.com.