Readers respond to columns discussing inherited properties
This week, we’re publishing comments and observations about two recent columns involving inheritances. In the first, two siblings wanted to distribute their parent’s assets differently than the way the parents stated in their will. Basically, they wanted to switch inheritances.
There were two homes, and instead of selling them both and dividing the money equally, the siblings want one brother to inherit the home he lives in while the other brother would take the vacation home. Our readers had some thoughts and experiences to share:
COMMENT: I only had this situation once and it involved a motor vehicle valued at $3,500, so there were no federal or state gift tax issues. The process that satisfied the Ohio probate court was to sign a document called an “Assignment of Interest.” I have also heard other Ohio attorneys using an agreement among the heirs to a distribution of assets that differs from the will.
Sometimes an heir might think they could get the distribution as specified in the will and then “gift”” the real estate interest and/or monetary interest to the other person (sibling etc.). If the value is less than the gift tax exclusion, that probably would work. I have even questioned if there would not be a gift tax issue if the aforesaid agreement were used. A rejection of an inheritance (essentially a disclaimer) could cause that person’s inheritance to pass to others via the descent and distribution statute under Ohio law. My understanding of a disclaimer is it operates as if the person disclaiming predeceased the decedent — that could depend on the language in the will.
If the will was clear that a gift to a person who predeceased them lapses, that probably would work. Bottom line, this can be a minefield and a good probate attorney is essential.
COMMENT: Your response regarding rejecting an inheritance in New York in order to provide the house to the
youngest sibling doesn’t track for me unless I’m missing something in the question. As I understand the question, two of the siblings want to reject their inheritance of the house, but not other financial assets or distributions under the will. One sibling wants to reject the house but share in the financial assets and other distributions. If this is the case, you’d want to make sure that they all consult an estate attorney as many states differ on how to handle this issue.
ILYCE AND SAM RESPOND: Thanks for these insights. It’s always helpful to have others share their experiences.
A separate column dealt with three siblings who owned seven acres of land. Two siblings wanted to cash out and one wanted to defer any capital gains taxes owed by going through the process of selling and replacing the property using an Internal Revenue Service Section 1031 exchange. A reader had the following comment:
COMMENT: I certainly could be mistaken, but the way I read the question was that the siblings owned the property
individually and not as a limited liability company. The LLC appeared to be set up only as the management company for the property. Your response was based on the LLC actually owning the property.
And even if that were the case, once the property was put into or taken out of the LLC, wouldn’t those events trigger a tax? Just wondering. I am not a real estate or tax expert (actually an old retired stockbroker), so this is more of a question than actually trying to correct anyone.
ILYCE AND SAM RESPOND: You are correct that if the three siblings owned the property individually, they each could decide to sell the property and each could go their own way. In particular, any one sibling could go ahead and move forward with a 1031 tax deferred exchange on their share of the sale. But if that were the case, we’re not sure why the siblings would have consulted three different lawyers and two accountants and received different answers.
A 1031 exchange allows an owner of an investment real estate property to sell that property and defer any tax on the sale, but the seller must follow certain rules to defer the payment of taxes to the IRS. First, they usually must sell the property using a 1031 tax deferred intermediary. Second, they must not receive any funds from the sale of the property. Third, they must designate a replacement property within 45 days following the sale of the original property. Fourth, they must close on the replacement property no later than 180 days following the sale of the original property. And, fifth, the purchase price of the replacement property must be at least as much as the sales price for the property sold.
There are quite a few other rules that must be followed, but if the three siblings owned the property equally, two of them could have sold the property outright with the third setting up a 1031 exchange for his one-third sale of the property.
Contact Ilyce and Sam through her website, thinkglink.com.