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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]Is there context missing on why they would gift their house to this sibling specifically? If, as you say, all of you have houses and mortgages of your own right now?

Because this is odd, and I'm trying to understand.

There's got to be more to this.  [/quote]

I am also trying to understand. I think the sibling suggested it and my parents went for it. They also didn't tell us all together. I called one sibling a week after I found out (because my parents asked me not to saying anything to my other siblings when they told me, since they wanted to tell my other siblings) and he still had no idea. I don't think it's intentional, but I think that my parents haven't thought this through and that they're doing this in a way that is really destructive for our relationships. [/quote]

Any insights into your sibling's motivations?  Is she financially literate enough to know the implications for other siblings as well as the tax and estate implications? Does she care if she has good relations with the rest of you?[/quote]

Sibling is jealous and insecure and likes having nice things. Sibling would not be able to afford a very nice house in a very nice area (mkt value is close to $3M), so this is the best way to do it. Sibling definitely does not understand tax implications, but parents will probably take care of that for sibling...and not a concern. Sibling understands that getting house now is better for them than getting house in 30 years from an estate standpoint, since it's worth so much less now than it will be in 30 years and thus, represents a smaller part of the estate. Sibling also understands no mortgage and implications of being able to sell current home and keep equity to invest in market, buy nice things, go on expensive vacations, etc.[/quote]

This is why you need to appeal to your sister’s greed.  Doing it this way is actually quite stupid from her perspective. Assuming your parent’s basis is quite low, the basis change alone (vs. inheritance) could mean paying capital gains on millions when she sells.  Any good estate lawyer will try to talk your parents out of doing it this way. IME, a good lawyer will also try to suggest doing it in a way that is fair to all the siblings. [/quote]

Thank you for pointing this out! I have no idea what basis is. Can you explain further?[/quote]

It’s complicated, which is why your parents need good legal advice, but the simplified version is that your “cost basis” for tax purposes is what you paid for the house (other things, like improvements, can add to the basis, which is where it gets more complicated) but it establishes the baseline for calculating any profit when you sell the house for purposes of capitol gains tax. Say your parents paid $300,000 a long time ago. If they did, and the house is worth $3 million at the time of their death, the heirs get a “stepped up basis” of $3 million. If your parents give your sister the house, your sister only gets the $300,000 basis. When she goes to sell, she’d owe capital gains tax on the sales price minus $300,000. If she inherited the house, she’d owe tax on the sales price minus $3 million. Huge difference.

Also, if your parents give the house to your sister, they will have to disclose the gift to the IRS, and it will count against their lifetime estate tax exemption. Unless the have over $24 million in assets, it wouldn’t cause an issue now, but the estate exemption will have to be reset by Congress in the next few years, and it has been as low as a million in the past. If the exemption drops and your parent’s estate is worth more than the exemption amount — including the three million gift — the estate will owe estate tax. There are different ways to deal with this situation with various types of trusts.

This is a complex area and I can’t emphasize that enough that they need good legal advice tailored to their situation. [/quote]

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