Wisconsin property gifted by parents, shared with sister

Terry,

Do you suggest having living trust done for my 1/2 of Wisconsin property that my sister and I were given by our parents—- or should I possibly wait and buy her portion of the town home if she offers her half since she is in process of moving to Florida next year. I am 61 and reading about how time consuming and expensive probate may be. Also, my mom who is now 92 says it should be 1/2 of $50K price they bought it for 30 years ago and not $100K (1/2 of $200K) which is was it is worth now.

Terry Says:  Aha, this is a complicated one.  First of all, your parents made a gift of half the value of the property to each of you.  Your “cost” is the value of the property at the time it was given to you — each, of course, having half the valuation of the property at the time of the gift.  Your parents made a gift — and this is counted against their lifetime unified gift of up to $5.25 million, without being subject to estate taxes.  If their estate will be less than this amount (including the value of the property at the date of the gift), then there will be no tax issues.  But you should have done a gift valuation at the time.  And if was done recently, you should have a real estate appraiser give a valuation as of the date of the gift for all of your records.

You and your sister should each have an estate plan that is built around separate revocable living trust.  (And your parents should have one, too.)  You’re right that this is done to avoid the time consuming and expensive process of probate, which could tie up any property for a year or longer.  As to the specifics of the Wisconsin property, I’d be interested in how it is titled right now.  Is it titled in joint tenancy with rights of survivorship?  That would mean that if your sister (or you) dies, the survivor would immediately get the decedent’s share of the property — without probate.  But if it is owned by both of you as “tenants in common” then the process of probate would apply, and the person named in her will would get her share of the property.

Now, I’m not trying to practice estate planning law without a license.  In fact, I always recommend that you contact a lawyer who specializes in estate planning in your state of residence, so mistakes are not made.  But first, you and your sister should decide how you plan to “share” this property — or whether she will sell her share to you (in which case you might owe taxes on the gain since it is not your principal residence)  and that’s assuming that the property has appreciated since it was gifted to you (another good reason to get that valuation as of the date of the gift!).

Be sure to introduce your estate tax attorney to your parents, because they obviously have some misconceptions about both tax and estate law.  Better to fix things now than try to deal with issues after they pass on.