Can Co-Owner of Real Estate Create a Life Estate?
Question:
If my sister and I inherited half of our dad’s house after he passed and then his wife went down to the courthouse and filed a life estate, is this legally binding? We had no knowledge of this and she is not our mother.
Response:
If your stepmother owns half the house, then she can create a life estate for her half, keeping for herself the right to live in the house for the rest of her life and then on her death, passing on her one-half interest to whoever she names on the deed. This does not affect your or your sister’s interest in the property. You each still own a quarter of the house and you also have the right to live there.
You, your sister, and your stepmother will have to work out together what this shared ownership means in terms of who actually does live in the property, who pays taxes, insurance, and maintenance costs. Typically since you all have equal rights both to live in the property and obligation to pay for its upkeep, the person actually living in the property covers these costs. If you were to rent out the property, you and your sister should each receive a quarter of the net rent after expenses. So you have an argument that your stepmother, if she’s living in the property, should pay you an equivalent amount.
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Is a Life Estate a Good Way to Avoid Probate?
Solution for Siblings Who Co-Own Real Estate Where One Wants to Live
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Hi Harry! My sister and I are co-trustees of a Realty Trust. My Question is How do we properly dissolve the Trust?
Upon sale of the realty property, we would like to ask Seller to issue checks equally to the two of us as Trustees. Do you agree with this and, if so, what wording should be included on the checks (i.e. payable equally to (1) “Jane Doe” and “Susan Doe”)?
The Trust has filed annual tax returns; the funds from the Trust have all been spent down maintaining the property; and the Trust owes no debts. I understand from the Tax Advisor my sister consulted that the Realty Trust will owe no taxes upon sale of the realty property (due to expenses and depreciation).
Lastly, do you suggest completing a final Gift Tax Return and any other documents showing the Gift equally to the sisters from the Realty Trust?
Sarah,
Without seeing the trust itself, I will assume it is a nominee realty trust, a common form of real estate ownership in Massachusetts. As trustees, you and your sister own and operate the property on behalf of and pursuant to the directions of the beneficiaries. These are generally named on a schedule of beneficiaries that is not recorded at the registry of deeds. Assuming you and your sister are the beneficiaries, then you should be able to direct that two equal checks be issued, one to each of you.
In terms of taxes, I agree that the trust should not pay taxes on the sale, though it will have to file a final return. However, you and your sister may have to pay tax on the capital gain realized on the sale, especially if you have been depreciating the property as you suggest. Finally, assuming everything above is correct, no gift tax return need to be filed since you and your sister are in fact already the owners of the property.
In any case, the lawyer handling the sale should be able to look at the actual trust and advise you on all of this.
Harry