Selling Estate House to Sibling, Less than Market Value

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counting_down
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Selling Estate House to Sibling, Less than Market Value

Post by counting_down »

First off, I will be consulting with my probate attorney as well as at least one accountant, but I'm curious if anyone here has gone through something similar.

My father passed away in January of this year. His estate is to be divided equally amount his three adult children (myself included), and I am the executor. HIs estate includes our childhood home, a vehicle, bank accounts, etc.

The short story is that one of my siblings would like to buy the house, and myself and the other sibling are not only onboard but would like to give her a break on the price. Let's say the house was appraised at $350K but we would like to sell it to her for $300K. This would take into consideration realtor fees, and the unknowns of selling a 100 year old house on the open market. Plus it is what my father would have wanted. We have already saved money because she has good contractor contacts and we are getting caught up on deferred maintenance for a reduced price.

I'm wondering how we will handle the shortfall. From lots of Google searching, it seems like we could each "gift" her the 1/3 of $50K shortfall. Or, we could disclaim a portion of our inheritance? Obviously we wouldn't be looking to claim any loss on sale on our taxes. Or, we could just sell the house to her for $300K? She would not be taking out a mortgage as she would cover the $100K owed to myself and the other sibling with cash inheritance received as well as a portion of what her current house brings in.

Any thoughts? TIA.
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windaar
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Re: Selling Estate House to Sibling, Less than Market Value

Post by windaar »

counting_down wrote: Tue May 14, 2024 3:30 pmHis estate is to be divided equally
Plus it is what my father would have wanted.
Aren't the 2 statements above contradictory? if your Dad wanted to direct the house to your sister with her getting more than 1/3 of the estate value then this would have been in the will.

You need to follow the will and distribute equally including house at market value. How you gift to each other after that is up to all of you.
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Lee_WSP
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Re: Selling Estate House to Sibling, Less than Market Value

Post by Lee_WSP »

Seller financed loan.
Big Dog
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Re: Selling Estate House to Sibling, Less than Market Value

Post by Big Dog »

if you 3 are the only heirs, you can make everybody whole if Dad has enough value in other assets. For example, if Dad had assets totaling $900k, then one sib gets title to the house free and clear, and the other two sibs split the remaining $600k. (May not work if some accounts are PoD/ToD). Otherwise, a simple letter to the Trustee/PR.

That said, the person who gets the house may be getting more value unless you've had an independent appraisal, or at least a couple of RE brokers opining what the house would sell for, from which you can deduct ~10% for expenses.
Last edited by Big Dog on Tue May 14, 2024 4:09 pm, edited 1 time in total.
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Watty
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Re: Selling Estate House to Sibling, Less than Market Value

Post by Watty »

counting_down wrote: Tue May 14, 2024 3:30 pm She would not be taking out a mortgage as she would cover the $100K owed to myself and the other sibling with cash inheritance received as well as a portion of what her current house brings in.
Loans like that between siblings are very likely to cause problems so that is a very bad idea. Families have been estranged over a lot less.

She should just get a mortgage to cover what what she needs to in order to buy the house for $300K(or whatever). Selling it to her at a reduced price is more than enough to do for her.

She should also have the house inspected just the same as if she was buying it from a stranger. That way is something big comes up six months after she buys the house there is no question about if the other siblings should chip in to pay for something like a foundation problem.
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RickBoglehead
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Re: Selling Estate House to Sibling, Less than Market Value

Post by RickBoglehead »

Pretty straightforward to me.

Estate values house at appraised price less expected selling costs (realtor fees). Let's say that is $320k. House is sold to sister for $320. Other 2 children gift sister $10k each.

Or, you can redirect part of your share of the bank accounts to her to hit $10k.
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exodusNH
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Re: Selling Estate House to Sibling, Less than Market Value

Post by exodusNH »

counting_down wrote: Tue May 14, 2024 3:30 pm First off, I will be consulting with my probate attorney as well as at least one accountant, but I'm curious if anyone here has gone through something similar.

My father passed away in January of this year. His estate is to be divided equally amount his three adult children (myself included), and I am the executor. HIs estate includes our childhood home, a vehicle, bank accounts, etc.

The short story is that one of my siblings would like to buy the house, and myself and the other sibling are not only onboard but would like to give her a break on the price. Let's say the house was appraised at $350K but we would like to sell it to her for $300K. This would take into consideration realtor fees, and the unknowns of selling a 100 year old house on the open market. Plus it is what my father would have wanted. We have already saved money because she has good contractor contacts and we are getting caught up on deferred maintenance for a reduced price.

I'm wondering how we will handle the shortfall. From lots of Google searching, it seems like we could each "gift" her the 1/3 of $50K shortfall. Or, we could disclaim a portion of our inheritance? Obviously we wouldn't be looking to claim any loss on sale on our taxes. Or, we could just sell the house to her for $300K? She would not be taking out a mortgage as she would cover the $100K owed to myself and the other sibling with cash inheritance received as well as a portion of what her current house brings in.

Any thoughts? TIA.
Don't disclaim the inheritance without consulting the attorney. It doesn't always work like you might expect.

If there enough money in the other accounts to balance it out?
WhyNotUs
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Re: Selling Estate House to Sibling, Less than Market Value

Post by WhyNotUs »

Is the buyer paying cash or having a mortgage? If there is no appraisal for a mortgage, then an executor would be wise to either pay for a drive by appraisal or have a realtor perform a comparable analysis. If neither of those is likely, one could perform a DIY analysis and document the effort. There are reasonable price reductions for things like realtor fees, cleaning fees, repairs, time on market, etc. if one has a cash offer.

All of the inheritors could sign the property analysis with deducts, to evidence that the executor is operating with the blessing of the other inheritors. If one is being realistic, then a reasonable deduct could work. I would not do it if it was not reasonable.

If there is to be a mortgage, then there will be an appraisal and you would need to work with that number and see if reasonable deducts made sense, assuming the value was higher than expected. If everything is above board and everyone knows what is happening, then it is less clean than a straight sale but that is not necessarily to the detriment of the inheritors. Property values are already moderating or declining in parts of the country. See WaPo interactive map today.

Remember, your primary responsibility is to execute the will.
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Topic Author
counting_down
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Re: Selling Estate House to Sibling, Less than Market Value

Post by counting_down »

windaar wrote: Tue May 14, 2024 3:40 pm
counting_down wrote: Tue May 14, 2024 3:30 pmHis estate is to be divided equally
Plus it is what my father would have wanted.
Aren't the 2 statements above contradictory? if your Dad wanted to direct the house to your sister with her getting more than 1/3 of the estate value then this would have been in the will.

You need to follow the will and distribute equally including house at market value. How you gift to each other after that is up to all of you.
Yes, you are right.. very contradictory. My father's will was 32 years old and it was a miracle I was able to track down the retired lawyer who had the original in his office safe. A lot can happen in 32 years - marriage, divorce, grandchildren, great-grand children and disability. Unfortunately, the extent of my father's estate planning was to update the beneficiaries on his 403b after my stepmother passed last year.

But, yes, I think gifting will have to come into play. Thanks.
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counting_down
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Re: Selling Estate House to Sibling, Less than Market Value

Post by counting_down »

Big Dog wrote: Tue May 14, 2024 4:05 pm if you 3 are the only heirs, you can make everybody whole if Dad has enough value in other assets. For example, if Dad had assets totaling $900k, then one sib gets title to the house free and clear, and the other two sibs split the remaining $600k. (May not work if some accounts are PoD/ToD). Otherwise, a simple letter to the Trustee/PR.

That said, the person who gets the house may be getting more value unless you've had an independent appraisal, or at least a couple of RE brokers opining what the house would sell for, from which you can deduct ~10% for expenses.
There isn't enough value in the other assets to split it that way, unfortunately. We did get a date of death appraisal, so we are pretty confident in the value. Not worried about her getting more. 10% for expenses gets us close to $300K though, so maybe we are okay at least on the sales price.
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counting_down
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Re: Selling Estate House to Sibling, Less than Market Value

Post by counting_down »

Watty wrote: Tue May 14, 2024 4:08 pm
counting_down wrote: Tue May 14, 2024 3:30 pm She would not be taking out a mortgage as she would cover the $100K owed to myself and the other sibling with cash inheritance received as well as a portion of what her current house brings in.
Loans like that between siblings are very likely to cause problems so that is a very bad idea. Families have been estranged over a lot less.

She should just get a mortgage to cover what what she needs to in order to buy the house for $300K(or whatever). Selling it to her at a reduced price is more than enough to do for her.

She should also have the house inspected just the same as if she was buying it from a stranger. That way is something big comes up six months after she buys the house there is no question about if the other siblings should chip in to pay for something like a foundation problem.
She won't need a mortgage as she will net more than enough to cover from the sale of her current house. As slow as probate is going, I expect her to be able to sell before our "wait six months for creditors" period is up.

We just had a home inspection yesterday at my insistence, nothing too major uncovered. We already had the house replumbed since my Dad apparently thought putting a pan under a leaking sink was a good solution (despite having enough $$ in the bank to cover house upkeep).
Topic Author
counting_down
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Re: Selling Estate House to Sibling, Less than Market Value

Post by counting_down »

Thanks everyone.. if we deduct 10% for selling expenses it gets us close to what my sibling and I have in mind. Gifts can make up the rest most likely.

If I get any different information after conferring with my lawyer I'll post an update.

Now, if only getting rid of two worthless timeshares in Florida was easy. <sigh>
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Re: Selling Estate House to Sibling, Less than Market Value

Post by barnaclebob »

counting_down wrote: Tue May 14, 2024 5:00 pm Thanks everyone.. if we deduct 10% for selling expenses it gets us close to what my sibling and I have in mind. Gifts can make up the rest most likely.

If I get any different information after conferring with my lawyer I'll post an update.

Now, if only getting rid of two worthless timeshares in Florida was easy. <sigh>
First, a realtor should be nowhere near this transaction. There is zero reason to light 6% of the sales price on fire. A real estate lawyer can handle the transaction.

Also you don't need to worry about gifting, appraisals etc unless needed to legally close the estate. The sales price is effectively the market price. Nobody is coming to audit the condition of the house after the fact. And if they do, well she took a run down house that needed a lot of work and nobody can prove otherwise.
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Watty
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Re: Selling Estate House to Sibling, Less than Market Value

Post by Watty »

counting_down wrote: Tue May 14, 2024 4:54 pm
She won't need a mortgage as she will net more than enough to cover from the sale of her current house. As slow as probate is going, I expect her to be able to sell before our "wait six months for creditors" period is up.

We just had a home inspection yesterday at my insistence, nothing too major uncovered. We already had the house ur lareplumbed since my Dad apparently thought putting a pan under a leaking sink was a good solution (despite having enough $$ in the bank to cover house upkeep).
That sounds a lot better, I misunderstood how that would work.

It would be good to ask your lawyer if she can just buy it directly from the estate for $300K without the house ever being put into the siblings names. That would be a lot cleaner.

As I understand it if the house is worth $350K and she gets a 10% discount for not having to fix it up and list it with a realtor ($35K) then that puts the house at $315K. If she buys it for $300K then that is only $15K less or $5K per sibling including her. The other siblings would only be giving up $5K each which would be well below any gift reporting requirement and small enough that it would not be a major concession which might cause long term hard feelings.
London
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Re: Selling Estate House to Sibling, Less than Market Value

Post by London »

You don’t need to do anything. The government doesn’t care about you getting the highest price (and doesn’t know what this property is worth, which is just an opinion, and not a fact).
bsteiner
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Re: Selling Estate House to Sibling, Less than Market Value

Post by bsteiner »

It’s within the gift tax annual exclusion so there shouldn’t be any issue.
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B88
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Re: Selling Estate House to Sibling, Less than Market Value

Post by B88 »

New of a case exactly like this. Will was very simple and said divide everything equally among three children. It may vary from state to state. The attorney said you weren't forced to sell any such item at exactly its value after all appraisals are still estimates and no guarantee of what something will sell for. If it were your personal house you aren't required to sell for any market value. Only that sellers and buyers agree on price. In this case, if two siblings agreed to sell for half of market value and the other sibling is a buyer, then you sell it for whatever everyone agrees to sell for. Again, rules may vary from state to state. In this case that is exactly what happened, they sold the house for about half the likely value, and the buying sibling did split other assets somewhat in the other sibling's favor to even it out partially. Probate was not a problem.
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CAsage
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Re: Selling Estate House to Sibling, Less than Market Value

Post by CAsage »

An appraised house that sells for a little less because you aren't paying a broker, staging fees etc is just fine. Houses, especially older homes, can have a lot of deferred maintenance so I'd be quite happy to take a lower estimate in dividing things up. Sell it to your sister for $300K. Ideally there are enough other assets for you each to get $300K in "other" or she buys you out....
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