Personal Finance: Ask the Experts

Get advice on money matters from The Bee's Claudia Buck and a panel of local experts

November 21, 2012
Why was 50% of house bought from mother's trust reassessed?

Q: Before my mother died she set up a special needs trust for my sister and I, we are both on social security. In her Will she said that she wanted the house to go into the Estate and for it to be sold and that would help to fund the trusts accounts since the proceeds would be divided between the two of us. She also left a great deal of stocks that her broker had set up and she would usually show a gain (no matter how small) on her quarterly reports. What I did, after she died, was sell my house (that I had already paid off) and buy her house but I am being told now that since my sister is also a beneficiary (there is just the 2 of us), that I will only be allowed to get 50% of her Prop.13 instead of 100%. Why is that, my sister did not buy the house I did. And if that be the case than maybe I should have only had to pay one half of the asking price of the house, since the other half was left to me in mom's Will. So I have a couple of questions:
#1 Did I get a bad deal having to pay full market value for the house, when 1/2 of it was left to me?
#2 Why would the County only give me 50% of mom's Prop 13, The name on the new deed is my name not my sisters.
God Bless my MOM, she had her heart in the right place and I love and think of her everyday.
Thank you for your time, Ellen
P.S Since we have Special Needs Trust, we are required to have a trustee to manage the trust accounts. If you are not happy with that person, can we just fire her? Can we ask for an outside audit, if so HOW?
Thank you again.
--Ellen, Sacramento, CA

A: The transfer of a primary residence from a parent to a child is exempt from property tax reassessment. Transfers between siblings are not exempt from reassessment. However, when a parent dies and leaves a residence to multiple children, there is a way to minimize or avoid the reassessment when one sibling buys out the other.

This type of buy-out transaction must be done in a very specific way, though, in order to qualify. Based on your question, it does not sound as if your purchase of the house was structured in the correct way to avoid property tax reassessment. Therefore, since your sister was entitled to receive half of the house, you essentially bought her share, and so that half was reassessed.

When you purchased your mother's house, the amount that you should have paid depends on the structure of her will or trust and what other assets you received. Generally, when you buy out the interest of another beneficiary in a residence, you would only pay for that beneficiary's share of the property. If you paid for 100% of the house, it would seem that you would be entitled to 50% of the proceeds when the trust is distributed.

If you have specific questions about your mother's trust or estate, and whether anything can be changed, I recommend consulting with an experienced estate planning attorney, who can review your mother's will and advise you of your options going forward.

With regards to the special needs trusts, the manner for removing and replacing the trustee may be set forth in the trust. If the trust includes such a provision, you may remove the trustee by following the procedure stated.

Otherwise, you may petition the court to remove the trustee and appoint a new one, but you must have grounds for doing so. If you are not happy with your trustee because you believe she is mismanaging the trust, you should see an attorney to petition the court for her removal.

However, keep in mind that the rules for special needs trusts are very strict in order to maintain the beneficiary's eligibility for public benefits. If you don't like the trustee because you think she is too restrictive with the distributions for your benefit, she may simply be following the rules set forth in the trust.

You can also ask that the trustee prepare an accounting for review by the court; this expense will be paid for by the trust (which reduces the funds available to you), but it may be worth it to have an independent review.

If you have questions about the terms of the trust, I would recommend meeting with an attorney who has experience with special needs trusts, who will be able to review the trust with you and explain what the trustee can and cannot do.

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Meet Our Financial Experts

Claudia Buck

Claudia Buck is The Sacramento Bee's personal finance columnist. Read all her columns here. Contact her at cbuck@sacbee.com

Terri Carpenter

Terri Carpenter offers advice on job hunting, retraining and career counseling. Carpenter works at Sacramento Works Inc., the career and job training arm of the Sacramento Employment and Training Agency (SETA). With 15 years in the field, she has hands-on experience with everyone from first-time job seekers to career professionals seeking advice after a layoff or looking for a mid-career change. Ask her a question.

Carlena Tapella

Carlena Tapella is a partner in the law firm of Webb & Tapella Law Corp. in Sacramento. The firm specializes in estate planning and probate, such as estates, trusts, conservatorships and litigation. She is a past president of the Sacramento County Bar Association's Estate Planning & Probate Section. Ask her a question.

Kimberly Foss

Kimberly Foss, certified financial planner, is the founder of Empyrion Wealth Management in Roseville. With nearly 30 years in the financial industry, her clients include women in transition, small business owners, retirees and "pre-retirees." Ask her a question.

Jesse Weller

Gregory Burke, a CPA and tax expert with John Waddell & Co. in Sacramento since 1984, worked as an IRS tax auditor for six years. He’s a past chairman of the California Society of CPAs. Ask him a question.

Daniel Tahara

Daniel Tahara takes your questions about California taxes. Tahara, a spokesman for the state Franchise Tax Board, has 10 years of experience as a tax auditor. Ask him a question.



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