My client wants by buy her Mother's lake cottage which is held in a living revocable trust. Mother is still living, but not doing well. Heirs are client and her sister. Sister has been wishy washy if she will allow client to buy cottage and pay the half interest to her. Client wants to secure the option now while her sister is being agreeable by having a real estate purchase agreement to be executed on the future after mother passing. I know if an installment agreement were entered into now, the step up would be lost. Question is would having a purchase agreement in effect would also negate step up?
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An indeterminate contract to be executed at some future unknown date may be unenforceable. Besides, how can you have a contract between two parties (the sisters) when they don't, and won't, own it until the Mother's death? One element of a valid purchase contract is consideration. This sounds like an Option to Buy which also requires consideration. This is a legal matter which should be thrashed out with an in-state attorney's help. Regardless, under federal law step-up basis will depend on ownership at the date of death, IMO, regardless of any future agreement between the sisters. If the sister who wants the cottage buys it now, it constitutes a sale and yes, stepped-up basis will be lost, as well as capital gains incurred by the mother unless it is her primary home. -
Parents have owned cottage as vacation home since the 60's so capital gains would be huge. Dad passed 20 years or so ago, so there would be some step-up, but no appraisal done at time. Mom goes on Medicaid next month for nursing home care. So, selling it now is really not an option. Since no money is changing hands, I couldn't see how it would be considered a sale, but since the amount would be so large wanted to get others opinion.
Client wants to do major upgrades and then have it be their primary home. She wants to start on upgrades now rather than later. I cautioned her from now until Tuesday that doing so may pose financial risks. Currently it's exempt from MC clawback, but told her the more she treats the house as her own the state may try to reclass the exemption to get MC money.Comment
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It's exempt from MC clawback -- because it is in a trust?Comment
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Yes, state exempts property from MC in revocable trust as long as it was transferred to trust prior to 2002.Originally posted by Burke View PostComment
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