How to sell a deceased parent's home.

Dear Len & Rosie,

What are the steps in selling my deceased mother’s home, which was in her trust? I am the successor trustee. The trust directs that the home be sold and the proceeds are to be split equally among myself and my two sisters.

Iss the home sold directly from the trust? Do real estate agents know how to do this? When the home is sold, does the escrow company make the distributions to the three of us separately? What, if anything, should the three of us report to the IRS on our individual income taxes? 

Dear Barbara,

Welcome to Trust Administration. It’s a lot faster than probate, and it’s much less expensive too, but it’s just as complicated. What you really need to do is to hire an attorney to represent you as trustee.

The first step involved is to get you on the title to the home. This involves recording an Affidavit of Death of Trustee with the County Recorder together with your mother’s death certificate. Property Tax forms also have to be submitted to the County Assessor to ensure that the home won’t be reassessed until its eventual sale.

Once you are on title, you can hire a realtor, list the property for sale, and sell it. When the property sells, the proceeds of sale should be electronically deposited into an account in your name as trustee of your mother’s trust, under a taxpayer identification number (EIN) obtained from the IRS.  Other trust assets would also be consolidated into trust accounts in your name as trustee.

After the sale, you can propose a distribution to your sisters. If they are cooperative, they’ll waive an accounting, saving the trust from having to pay a bookkeeper to prepare one. After the accounting is either waived or approved by the beneficiaries or the court, you can then make a distribution equally to all three of you, while maintaining a reserve for taxes, fees and costs, and unanticipated expenses. As a general rule, once you give money to your sisters, you aren’t getting it back, so keep a sufficient reserve to cover your costs.

Your mother may require a final income tax return for the year of her death. In addition, the trust will have to file an income tax return, if only because of the sale of the home. There isn’t likely to be much in the way of taxes due, however, as the home should receive a cost basis adjustment as a result of your mother’s death. In the following year, after you have completed the tax returns, you can distribute the remaining funds in equal shares.

That’s it in an nutshell. There are a number of other issues to deal with, including trustee fees, IRA’s, life insurance, potential Medi-Cal estate claims, transferring your mother’s automobile, etc. That’s why we recommend you hire an attorney to represent you in this process, because it’s easy to make mistakes that can cost money and make things more difficult for you and your sisters.

Len & Rosie

Spouse passed before Estate Planning was put into place. Now what?

Dear Len & Rosie,

Friends recommended an attorney to us for the revocable trust we wanted, but my husband passed away before our scheduled appointment with the attorney. If our home, vehicles and bank accounts were in both our names, do I need to see an attorney? If I was his designated beneficiary on his IRA and bond funds, do I need to see an attorney for any reason?

Betty

Dear Betty,

Ownership of assets titled in joint tenancy or as community property with right of survivorship passed to you automatically as a result of your husband’s death, as did any assets for which he named you as a pay-on-death beneficiary, such as Individual Retirement Accounts, other retirement accounts, and life insurance policies. For any accounts you and your husband own together or for which you are named as a beneficiary, all you need to do is to provide each financial institution a certified original death certificate and fill out a few forms. Make sure that you roll over your husband’s IRA into your own IRA instead of just cashing it in.

To remove your husband’s name from the deed to your home, you need to sign an affidavit of death of joint tenant, assuming the home is in joint tenancy, and record it with your husband’s death certificate. There is also property tax paperwork to be submitted to the County Assessor to ensure your home is not reassessed under Proposition 13. We recommend that you do not do this yourself, unless you are already experienced in preparing and recording deeds. Deed work should be done by attorneys and title insurance companies.

But that’s not all. It is also important to obtain date-of-death appraisals of your home and any other assets you own with a cost basis, such as securities. You need to do this to establish evidence of the new cost basis of each such asset resulting from the step-up in basis that happened when your husband died.

If there are any assets titled solely in your husband’s name, or any real property held in tenancy in common, see an attorney. You’ll either have to probate your husband’s estate, or file a spousal property petition with the court to get these assets into your name.

After that’s all said and done, you need to look to your own estate plan. You need to create a trust so that your estate will avoid probate upon your death. Sure, you could put everything in joint tenancy with your children, but that’s an awfully bad idea for many reasons, not the least of which is that your children will own part of your home, and you won’t be in complete control of your life any longer.

Len & Rosie