[WSBAPT] best way to deed property to heir who is buying out siblings

Tue Mar 17 10:19:13 PDT 2015

As an added two cents to Eric's comments, the certified appraisal also becomes important in the event the Department of Revenue reviews and elects to audit the sales price and collected excise tax on the transaction. 

A client came to me about what he believed he received as an heir a distribution of property from an estate.  The estate sold property to a third party on a short term note and the third party defaulted. The heir believed he received the property as his share of the estate, but instead the estate distributed to him the bad promissory note. He was not happy, but luckily, the client and the third party were able to agree to new terms.   

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Maureen A. Wickert, Attorney at Law 

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----- Original Message -----

From: "Eric Nelsen" <Eric at sayrelawoffices.com> 
To: "WSBA Probate & Trust Listserv" <wsbapt at lists.wsbarppt.com> 
Sent: Tuesday, March 17, 2015 9:42:08 AM 
Subject: Re: [WSBAPT] best way to deed property to heir who is buying        out        siblings 

I think the deed sequence depends upon how the transaction is structured. 

If the Estate is transferring directly to buyer-heir, then I think it should be done as a direct deed from Estate to buyer-heir. It would have to be a sale rather than inheritance because it's not simply a non-pro-rata distribution: the buyer is having to pay in money above her/his inheritance. I find that it's easiest to imagine this simply as a straight sale of property from Estate to a third party, with the third party getting a credit against the purchase price representing the heir's share of the Estate. That keeps the tax and other consequences clear: it's a normal sale, with all the usual requirements of reporting the sale as capital realization gain/loss; but excise tax is lower than full sale price because there's an inheritance exemption for a portion. 

Purchase price absolutely must be backed up by a certified appraisal and agreement of all heirs in writing. That safeguards the PR from any accusation of breach of fiduciary duty. 

The seller-financing that you describe is a little unusual for an estate. I think it qualifies for the regulatory exemption with DFI--see http://www.dfi.wa.gov/residential-seller-financing --but the main question in my mind is, what is the PR's obligation concerning financing terms and security? I think the PR has a duty to charge commercial rates of interest and properly secure the debt, just like any other lender. Then the Note should be promptly distributed in-kind (assigned) to the other heir so that the debt is owed directly to the other heir. (I also necessarily assume that the other heir is completely cooperative with this entire scenario.) Both heirs should be advised to get their own lawyer if they want, since you don't represent them individually and you can't advise them whether the transaction is a good risk/good investment for either of them. Effectively, the non-buying heir is risking loss of part of their inheritance if they don't get paid back, and the buying heir doesn't know if the price and terms are good. 

Alternatively, if you don't want to mess with any of that, then it's okay to do it the other way: distribute from Estate in equal shares to the two heirs, and let the buyer make her/his own arrangements with sibling to buy the other out. They can get separate counsel for that. I think excise tax would be higher because it's a straight sale of 50% as opposed to a smaller interest resulting from an offset of the inheritance--but it keeps the Estate out of the transaction and avoids the Estate having to work through the nuances of its fiduciary duties to all heirs. 

Sincerely, 

Eric 

Eric C. Nelsen 

SAYRE LAW OFFICES, PLLC 

1320 University St 

Seattle WA  98101-2837 

phone 206-625-0092 

fax 206-625-9040 

From: wsbapt-bounces at lists.wsbarppt.com [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Chandra Lewnau 
Sent: Tuesday, March 17, 2015 8:42 AM 
To: WSBA Probate & Trust Discussion List 
Subject: [WSBAPT] best way to deed property to heir who is buying out siblings 

I have a probate where one heir wishes to purchase the decedent's home. Is there any reason this can't be done in one step - i.e. a deed from the PR (as pr and as individual) to the heir - rather than PR to all heirs and then all heirs to the purchasing heir? It's a small estate with two sibling heirs who get along well. The purchasing heir will take a smaller share of other assets and give a promissory note for the remaining balance with a relatively short payoff. It seems simple, I'm wondering if there are any tax or other consequences I may be missing. 

Chandra M. Lewnau   Wills & Trusts | Probate | Small Business 

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