Dear Len & Rosie,
My parents are in their 60's and are thinking about making a revocable trust. They want to leave their house to all three of the children, but they do not want us to sell the home after they both die. Is there a way they can make it so the house can't be sold after their deaths? My mother wants to be sure we always have a place to live if something should ever go wrong with our homes.
Your parents can do this. They can create a revocable trust that would be able to maintain control of their home. Instead of simply distributing their home equally among their children with all of their other assets, your parents’ trust can continue on after their deaths. The trust can include almost any restrictions they want with respect to how their home will be maintained after their deaths.
Your parents can even tie up the property within a dynasty trust for a minimum of 90 years after their deaths. If done right, the property can be held for the children, grandchildren and great-grandchildren.
But if they do this, there will be complications. First, if their home is held in trust, that means the trust has to pay for the expenses and upkeep of the home. Unless the home is rented out, there will be no trust income available to pay these expenses. That means your parents will have to either leave sufficient assets in the trust to pay the continuing expenses of the home, or make their children pay these expenses.
A second complication is capital gains tax. When your parents pass away, the home will receive a stepped-up cost basis. This means that when the property is eventually sold, the amount of capital gains tax and California income tax due will be based on the increase in the value of the property since the surviving spouse’s date of death. If the home is held in trust until all three children die, it will have undoubtedly increased in value and there will be a significant amount of tax due upon its sale.
Finally, your parents may want to use a little common sense. Sometimes the job of an estate planning attorney is to tell the client, “This is a bad idea.” If all three children are already buying homes, keeping their own home in trust as an emergency backup home is probably a bad idea. It may force the children to become landlords when they may not want to.
Even worse, if one of the children does winds up living in the home, the other two children may never benefit from a large portion of their inheritance. This can create resentment and could even result in your family breaking apart. Unless there’s some overriding reason why this is necessary, it’s usually a better idea to distribute the home outright to the children and let them decide what to do with it.
Len & Rosie
Dear Len & Rosie,