Inheritance Mess

[deitris]

What is the name of your state (only U.S. law)? Idaho

14 years ago, my mother died. Her stocks were split between three girls. My sister took possession of the family home which upon her selling it, the profit would be split three ways.

My sister just sold it. We each received $96,000. It was GIFTED from my oldest sister since through a mortgage, had it in her name, not a trust.

What is the tax situation with this?

Any help is appreciated.

 

[efflandt]

If sister inherited the home, the cost basis would have been the fair value at mom's death. If it was put into sister's name before mom's death, the cost basis would be mom's cost basis (her original or inherited cost) plus any improvements. Or joint tenants with survivorship would have been more complicated. So capital gain depends how/when it ended up in sister's name.

Assuming sister lived in the home, she would get a $250,000 capital gains exclusion ($500,000 married filing jointly).

With the time that has transpired she would likely need to file a gift tax form for the other 2 sisters for the amount over the $12,000 annual exclusion (from any person to any person) for each of you and other sister. But there is no gift tax due from the home owning sister until $1 million unified lifetime credit is used up.

You might want to contact an estate attorney depending upon what all the papers said related to this. But since the home somehow ended up in one sister's name, that is the likely scenario.

 

[tranquility]

My sister took possession of the family home which upon her selling it, the profit would be split three ways.

What does this mean? Who inherited the property?

My sister just sold it. We each received $96,000. It was GIFTED from my oldest sister since through a mortgage, had it in her name, not a trust.

That might have been the way you handled it informally, but I don't think that is what happened.

I was going to start doing an if/then, but I'll decline until an answer comes for the first question. How was it inherited?

I bet you set up an informal trust for the house and each owned 1/3 of it. I'm not sure the sister who lived there "owned" the property under the grantor trust rules in this type of situation because each granted property to the trust and no one could change or amend the agreement. I'm not absolutely certain of that and would have to go over the facts carefully to be sure. But, at best, only the sister who lived there would get the section 121 exclusion talked about by efflandt above and I don't think any would.

Now, the sisters may get away with the "gifting" scenario the OP is trying to push. If sister who lived there took the property into her own name directly from the estate, who's to say the other sisters didn't disclaim their rights to the house? As long as there was no agreement to later split the profits, the sister can now gift over portions to the other sisters. We have the problem of the agreement which would make this tax fraud, but a hard fraud to prove. (Depending on the specific facts.)

See a tax professional this year. You don't get to do things informally and without documentation and later decide to make up facts which work out easiest and best. I think all three inherited. A trust was created with the agreement to split the profit three ways. (Don't even get me started on this informal trust which is not in writing which of and concerns land.) I think this is a simple capital gains question. No matter the choice made it will probably be OK. But, if it goes bad for some reason, this could go very bad with lots of lawyers fees and penalties.

See the guy this year. Let him advise you after looking at the facts.

 

[deitris]

Who inherited the house

Well, that's the problem. We don't really know. The will can't be found at this time. At mom's death, it was in trust. Then there is this piece of paper putting the trust and/or house into the oldest sister's name. From what I see, she owned it outright in trust, and the will probably states how that trust was to be divided upon sale of the home. Hopefully.

We were not given a check from a trust fund. It was a personal check from my sister.

Then there was a mortgage that she used to make repairs/pay taxes, etc., on the house. That was definitely only in my oldest sister's name. That was paid off with the sale of the house.

I will have my tax person look at it and hope for the best. We are hoping the attorney from way back when found the trust papers in archives last week, we'll know on Monday.

I'll post back any info for curiosity sake.

 

[curb1]

You should be able to go to the courthouse to see how the property is titled (and the history of title change). A good clue would be on any property tax statements that were received (if you have property tax).

 

[anteater]

The will can't be found at this time. At mom's death, it was in trust..... and the will probably states how that trust was to be divided upon sale of the home.

If the house was in a trust, then the trust document should contain what happens to the assets in the trust.

Then there is this piece of paper putting the trust and/or house into the oldest sister's name.

A piece of paper?

From what I see, she owned it outright in trust...

That is pretty contradictory.