Anyone heard of this?

Ventucky Red

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Jon
Helping out my FIL set up his estate.. recently lost his wife and has not done anything hence the mad rush to do it now.. Yes we're doing all the stuff with setting up the trust etc.. but he ran something by me last night that just doesn't pass the "sniff test."

Here is the scenario:

Man and wife buy house and have a son - the man and wife were my in-laws neighbors and very close with other community activities.

The man dies, and his wife lives in the house – son had moved on many years prior... It is unclear how the deed was recorded or who had ownership on the title once the man passed away—IMPO I'm thinking Community property with right of survivorship or through a trust it was transferred to the son with the provision that the mother lives there…. this is the wild card where I don't have the facts.

Fast forward the son moves mother into a nursing facility and sells the house.

Son tells FIL that he had the property reassessed from the original tax roll value protected under Prop 13 to the present-day value of the home with the new property tax assessment and pays the pro-rated taxes. He tells the FIL that in doing so he avoided paying capital gains tax; that is, he paid the five months of property tax to avoid paying a much more significant sum in capital gains tax on the first $1.0 million in proceeds when the property is sold. The house was originally bought for $65K and the sold for $1.2 Mil.

Personally I am thinking this is a fish tale, but with the laws changing who knows what can get through the loop holes once or twice.

Anyone here ever heard of this?
 
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Obviously this is in CA with Prop. 13. My mother passed away a few years ago. My siblings and I were able to take ownership and sell her home without paying any capital gains on it. She bought it in 1973. It was our childhood home. So the appreciation, while not quite as much as you posted, was still quite significant. I can't tell you the exact mechanism she used but I believe it was some kind of trust.
 
Doesn't any real, stocks, bonds etc, except annuities, pass to heirs on a stepped up basis, regardless of it being being probated or held in trust? Not sure I'm following this.
 
Obviously this is in CA with Prop. 13. My mother passed away a few years ago. My siblings and I were able to take ownership and sell her home without paying any capital gains on it. She bought it in 1973. It was our childhood home. So the appreciation, while not quite as much as you posted, was still quite significant. I can't tell you the exact mechanism she used but I believe it was some kind of trust.

Was this in CA?
 
Under Proposition 19, if a child inherits a home from their parent(s) and does not use it as their primary residence within one year, the property tax base will be reassessed to the current market value. This change has had a significant impact on California homeowners and their families.Oct 11, 2023
 
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Under Proposition 19, if a child inherits a home from their parent(s) and does not use it as their primary residence within one year, the property tax base will be reassessed to the current market value. This change has had a significant impact on California homeowners and their families.Oct 11, 2023

And there is another part...

Proposition 19 has limited this parent-child exclusion, so that if the child's assessed value exceeds the parent's by more than $1 million, the child's new taxable value will be the current assessed value minus $1 million.

As we understand it, with my in-laws house, the value is $1.3 million, but he paid $37K for the house in 1967, and was valued at $49K when Porp 13 hit. Should my wife or her sister decide to keep the house then one of them would be on the hook for a new property tax assessed at $300K. We don't want the house... neither of us want to live through another remodel.

Oh! I think I found the answer to my question, it is called Grantor-retained annuity trusts (GRATs).... this allows a grantor to transfer assets into an irrevocable trust and receive an annuity payment from the trust for a set number of years. When the trust expires, the remaining assets are transferred to the grantor's beneficiaries with little or no gift tax liability.
 
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