Q: My brother and I inherited our father's house with no lien (equal shares). I am buying his 1/2 interest in the property
based on the FMV. I am paying cash, no loan needed. I am wondering the pros/cons of either (1) transferring the property into our joint names first, then completing the buy-out after the estate is closed, or (2) doing the buy-out through the estate, then we distribute the house/funds accordingly. Would I need to file an estate tax return? (estate only consists of house worth $400K, paying brother $200K.).
A:
Thanks for your post. One beneficiary/heir buying out the other(s) presents a fairly common scenario.
When an estate has enough other liquid assets, then to eliminate transfer taxes it often makes sense to distribute the real estate entirely to the child who wants to acquire it and distributing an equivalent amount in cash to the other chiild(ren).
Otherwise, if the real estate is the primary asset or there simply isn't enough cash this can be done either way your post mentions, EITHER with 2 deeds, the first a fully exempt deed of distribution out of the estate and the second a transfer of the 1/2 interest OR with a single deed. My law firm does it both ways regularly and in most cases it amounts to "six of one, half dozen of the other". A single deed does save slightly on deed recording fees.
If the sales price is more or less than the date of death value for the 1/2 interest, then this becomes an accounting question and any gain / loss would need to be determined.
An estate tax return is generally required when an estate earns more than $600 in income (or when there is a gain / loss). For example, if the property was rented out the Personal Representative would need to file an estate return to report the rental income.
While not legal advice, I hope that this helps answer your question.
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