Structuring The Sibling Buyout For Inherited Property

A new client told me that she wants to “buy out” her brother. They recently inherited an apartment complex from their father’s estate. They both want to manage it, but they know they won’t work well together. Their management styles differ – she wants to apply income to much needed repairs and updates, while he wants to raise the rent and put money in his pocket now.

I reviewed the property’s chain of title and learned that the property had already been distributed out of her dad’s estate to her and her brother, 50/50. When we met, the worst she was expecting to hear was my estimate for legal fees. She shrieked in horror when I told her that property taxes, based on assessed value of the land and improvements, would increase from $2,400/year to around $19,200/year after the buyout. In attempting to save a few thousand dollars by conducting the estate administration themselves, she and her brother had made a terrible mistake.

They could have structured the “buyout,” such that the property would be distributed to my client directly from her father’s estate – through non pro rata distribution of assets and a “bridge loan” – and kept property taxes at $2,400/year. Under Proposition 58, a child can “inherit” the low property tax basis of a parent – in many circumstances, the transfer between parent and child is entirely exempt from reassessment by the County Assessor. No such exemption applies to transfers between siblings.

If you are picking up the reins as trustee or executor in a trust or estate administration, we encourage you to contact us early in the process to avoid making costly mistakes. We can provide you with a tailor-made checklist and allocation of responsibilities between attorney and client. Where appropriate, we have no problem shifting trust administration tasks to competent and willing trustees in order to save on legal fees.