[WSBARP] Sale of House to Heir

Wed May 24 16:48:52 PDT 2023

I'm doing one right now in which the estate will transfer property to four heirs as equal tenants-in-common.  They will all receive a step up in basis.  One of the four heirs wants to buy out the other siblings and put the title into her name.  The one heir plans to obtain financing to buy out the other siblings.  In such a transfer, excise tax will be paid on the amount the one sibling pays the other three.  If the one sibling cannot obtain financing, the property will likely be sold and the net proceeds split 4 ways.

Mark B. Anderson
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From: wsbarp-bounces at lists.wsbarppt.com <wsbarp-bounces at lists.wsbarppt.com> On Behalf Of Karen Cobb
Sent: 05/24/2023 3:50 PM
To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com>; wsbapt at lists.wsbarppt.com
Subject: [WSBARP] Sale of House to Heir

I have a probate with five equal heirs (brothers).  One brother is interested in purchasing the decedent's residence from the estate, but it is the only significant asset.  Four brothers are willing to enter into an agreement to allow fifth brother to buy (somewhat under market) but are uncertain whether he will be able to obtain financing in the time agreed - one year.  During that year he will pay all expenses, taxes, etc.  There is also a second parcel that brother five will have five years to purchase (at market), while the estate continues to pay the taxes and brother five pays all other costs.  Even if brother five is able to obtain financing, if he defaults or cannot obtain financing on the second parcel, he agrees BOTH will be sold to a developer and the proceeds split accordingly.   I've advised of the pitfalls but they want to at least do their due diligence to help out brother five if possible.

We plan to use a TEDRA as the governing agreement.  What is the best way to handle transfer or retention of title to ensure that the four brothers are protected if the fifth cannot obtain financing AND also preserve the step up in basis/DOR exemption?  Should the parcels stay in the estate and transfer only when financing is obtained?  Should they be transferred to brother five with TEDRA handling the unwind if he fails/defaults.  Should they be transferred to all of the brothers with the agreement to be sold if financing is not obtained or there is default on the terms?  Into a Trust with all five as beneficiaries and PRs as Trustees, trust terms dictating default repercussions?   Pros and cons to each option?

Any guidance would be appreciated.
Thank you.

Karen L. Cobb
Attorney at Law
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