trust questions

[tenaciousd]

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

Situation:

My grandfather and his second wife are on the title of a property that my mother will inherit according to their living trust. My family was raised on that property and my mother would currently be living there, however the property needs serious rehabilitation worth at least $80k. Mom already put $50k into foundation repairs, sewer lines, roof, and a new garage last year. My mother and I both think it ill advised to sink money into this property when we have no guarantee that she will own it.

We are worried about the trust changing or being executed improperly because Grandpa's second wife has a daughter that is the executor of the trust and will do whatever she deems in her own interest...including renting or selling property to properly compensate herself as executor. If Grandpa kicks the bucket before his second wife the odds are that my mom will not get anything.

Our Goal:

To get my mother on title to the property immediately, or create a trust that is irrevocable and determines that she will receive the property when both grandparents kick the bucket.

Issues:

Grandpa consulted his attorney. He responded that Grandpa needs to gift the property to my mother at his cost basis (approx $30k), and she would have to pay capital gains if it was ever sold (worth approx $500k). The difference of $470k would be counted to some sort of lifetime gift maximum of 1-2 mill.

My question is, if they go through with the gift will mom be liable for $470k worth of gift taxes? Or $470k - $13k (whatever the annual max is.)

Grandpa does not understand taxes very well and does not care to.

Any ideas on the best/cheapest tax wise method for Mom to take title immediately? We intend on keeping the property in my family for the foreseeable future.

 

[curb1]

1) Who is (are) the trustee(s) of the trust at this time? Who is the successor trustee of the trust?

2) What is the exact wording on the title of the property? Is the property in the trust now?

3) You said, "Mom already put $50k into foundation repairs, sewer lines, roof, and a new garage last year.". Does Mom have accurate accounting for the costs of these projects?

4) What does "grandfather and second wife" feel about the "goals"?

5) You said, "We are worried about the trust changing or being executed improperly because Grandpa's second wife has a daughter that is the executor of the trust and will do whatever she deems in her own interest.".

That is a very real concern. Daughter is not the "executor" of the trust. Is she the trustee of the trust? Why is she involved and not your mother?

 

[Kiawah]

Grandfather should not overlook the fact that he may end up in a skilled care nursing home, and require substantial monthly dollar outlay to care for him. This could be years of expenses. His home might be his major source of funding for that care.

 

[tenaciousd]

1) Who is (are) the trustee(s) of the trust at this time? Who is the successor trustee of the trust?

2) What is the exact wording on the title of the property? Is the property in the trust now?

3) You said, "Mom already put $50k into foundation repairs, sewer lines, roof, and a new garage last year.". Does Mom have accurate accounting for the costs of these projects?

4) What does "grandfather and second wife" feel about the "goals"?

5) You said, "We are worried about the trust changing or being executed improperly because Grandpa's second wife has a daughter that is the executor of the trust and will do whatever she deems in her own interest.".

That is a very real concern. Daughter is not the "executor" of the trust. Is she the trustee of the trust? Why is she involved and not your mother?

1. The trustee is the second wife's daughter. Not sure who the successor is.

2. Okay I was incorrect on the title. The property is in the trust and a title check reflects that.

3. Mom has an accurate accounting.

4. Grandpa and his wife are in agreement with us. They promised the property to mom a long time ago. The problem is that they have no knowledge of how to make this happen with the least tax obligations, nor do I. Currently they have agreed to "give" her the property now as long as it costs them little or no money. What's the best method to do this?

5. Daughter is the trustee. She has no interest in this particular property, however she is a beneficiary of another property in the trust.

Sorry if I am using these terms incorrectly.

Can anyone tell me what the tax implications would be if they "gave" my mom the house right now? Cost basis is around 30k, county records have a value around 80k, appraisal now would be around 500k.

Thanks.

 

[anteater]

If they gift an asset to your mother with a cost basis of $500K, then they have a reportable gift of $474K, assuming that each uses their $13K annual exclusion. That does not mean that there is an immediate tax liability since every person is allowed to make $1 million in lifetime reportable gifts before paying gift tax. But eating into that $1 million does reduce the estate tax exemption. Unfortunately, with the fate of the estate tax up in the air, it isn't possible to say if that has an effect upon them or not.

They really should consult with a tax professional before undertaking this transaction.

Are you sure that the second wife's daughter is the trustee now? In most living trusts, the trustor(s) (the persons creating and funding the trust) are the trustee(s) until they pass away or become incompetent. Then, a designated successor trustee takes over.

(By the way... While the term may be used in a humorous way, talking about "kicking the bucket" is rather unseemly.)