How to Handle A Home Left in A Trust

If you're lucky enough to inherit a house from my home trust it will no doubt be a tricky situation. No matter if it's from a parent, sibling, or other benefactor you will need to know the ins and outs of this situation so you can best serve yourself. Most likely somebody has passed away and left you their property. This will not be an easy time and judgment can be clouded as your personal and financial life will be trying to make sense of everything that's going on.

If you and your co-beneficiaries decide that one person will keep the home and pay the others off you'll want to know how to do this right so you don't cost yourself in the long run. How does a person pay the others off? 

The perfect scenario is win the entire party agrees that one of them will pay the others off. Rarely is it this mood; everybody usually has their best interest in mind and is looking out for themselves. Someone may have an emotional attachment to the property, while another sees it as pure dollar signs. 

A lot of the time it is just like a divorce, both parties are fighting for the property and a settlement is not the easiest to obtain. Because this is a trust, lawyers and or a mediator will be necessary. Mediation is always the first option and if that does not find a solution then lawyers will battle it out in court.

Paying off the others

If everyone can agree that one person will pay off everybody else the situation needs to be looked at as an "arms length transaction", which is when the property needs to be sold for fair market value and not include any emotional attachment. This is business, and it should be treated as such.

An appraisal of the property will be the first thing that is done, and if for whatever reason the party won't agree to that, then a real estate agents opinion will suffice. Everybody in the party should have a real estate agent to represent their interest during the process. This way nobody gets left out and misunderstandings are less likely. 

Some people in the party will be happy to be paid off, and others will want to squeeze as much out of the deal as they can. It's important to not sell it to low otherwise you may have major tax problems in the long run.

If it is sold it to low to the sole owner, and they wa t to sell it a few situations may arise:

 They might not be able to claim as much depreciation that they could have been entitled to if it were bought at a fair market value.

They could also have a much higher capitol gains tax which is figured by the selling price minus your adjusted basis (purchase price minus accumulated depreciation).

If you choose to skip hiring the professional real estate agents, appraisers, and a mediator, you are setting yourself up for major mistakes.

Transactions which derive from trusts require a complete and competent professionals to make the deal go smoothly. Think of it like this you can pay the professionals now, or pay the professionals and the IRS later.

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