Expert: Dick Dennis - 3/20/2010

Question
My mother has a nice home in So. Cal. under a family trust.  The trust documents list all 5 children as first appointment beneficiaries and executors of the estate.  My mother passed away earlier this year and we are preparing to sell her home. One sibling has suggested that she represent the family on all matters concerning the sales transaction and that the rest of us simply decide up front the bottom dollar offer we'd be willing to accept (prior to even listing the home), and then  relinquish our responsibility and allow her to handle everything with the sale.  Other than reviewing neighborhood comps to get an idea on what homes in the area are selling for, this sibling is somewhat inexperienced in contractual matters and is not known to be detail oriented.  If fact, she thought the home should be listed for what the bank appraised it at last year, which is about 65k less than current sales. Her goal is for a quick sale to give closure to my parent's passing.  Naturally, the rest of us have concerns with her representing us and are trying to voice this in a diplomatic manner. We may be willing to have her act as the liaison for the family but we want to participate in all decisions.  This sibling is pushing forward already contacting realtors to interview.  My questions are as follows:  1) Are we protected from her making the decisions for the family because we all will need to sign the listing agreement and all documents on the sale, or are there some documents that would only require one signature from a family member? 2) Do the proceeds from the sale get taxed under my mother's tax bracket or will they be equally disbursed to the beneficiaries and taxed at our individual tax brackets?  3) If taxed under my mother's tax bracket, can the federal one time exemption on capital gains from primary residence sales be taken?  I don't recall what the exemption limits are today.  Thank you for your time.

Answer
First thing, no matter what, Brenda, is to get a goooood real estate attorney, or an estate attorney, possibly the one who created the living estate. Of course, all of you would have to agree to this and this will probably be the first of (hopefully only a few) disagreements that will pop up during the disposal of the property (from my previous experiences). But that is what is to be expected when you have five people trying to come to a singular decision.

To answer your questions: 1. As long as all of you are on title equally, Brenda, there is no way for that sibling to sign ANYTHING without everybody else putting their mark on the necessary documents . . . the way it is now. No real estate agent will even take a listing without ALL signatures. And neither any escrow company or title company or their attorneys.

2. By her passing, your mother escaped any taxable events. Any tax consequences are now the responsibilities of all five of you. Each will be responsible for their own taxes based on each one's own tax brackets, not the property's. For example, you have a different tax bracket than sibling #2 and if the property gives off $100,000 in capital gains, your one fifth ($20,000) would be taxed according to your regular income. If you have not held the property for at least a year, it would be ordinary income and taxed as such. Sibling #2 would probably have a different amount of tax responsibility. And so on down the line.

3. Not applicable.

The capital gains exemption you were looking for are only applicable to a primary residence. It applies to someone who is selling their property when they are alive. Since I assume all five of you did not use the property as your primary residences, then any gain out of the property, and if it is held less than a year and not used as a rental, it becomes ordinary income and taxed as such.

You really should contact that estate attorney or a CPA or tax attorney to make sure you are handling the sale properly . . . taxwise. Do not let any one of you make any major decisions without having a knowledgeable Realtor, who should help with present-day values, and attorney and tax expert in the picture. You will be making a big mistake if you limit the professionals used because you want to save money. If not done right, it could cost you lots more than what you think you are saving. I do wish you well.

Dick Dennis
CA Broker Lic. #00349415
dixiedee13@aol.com