The situation would be. Lets say you own an unimproved piece of land.
And a family member a parent wanted to build a house on it.
Conventional wisdom would be you would need to sell it to them, right?
The land is owned outright. The parent would build a small home on it with improvements, (water, power, sewer). No financing required.

When the parent dies. The home would be passed to the owner or previous owner if the lot was sold to do the build.
Is there another way to do this. Keep ownership as it is currently and let the parent build. I know there are tax ramifications. Not looking to skirt any of that. Just wondering if there is something I have missed in this scenario.


Thanks guys and gals.

In Arizona there can be a deed upon death. I don’t know much about it, but the lady that used to live across the street had a deed upon death so when she died, the home was given to a guy named Grant.
Grant bought the house for Alice. It wasn’t really Alice’s house, but it was. Upon her death, the ownership of the home is transferred to Grant. This keeps Alice’s daughter from taking the house from Grant.

That’s about all I know of that kind of thing. I hope it helps.

This may not be the answer you’re looking for, but this is definitely a question for a good real estate attorney in your jurisdiction.

I’m going to guess a trust of some sort with you, the parent, and should you die first whoever you’d like the property to go to as beneficiaries. An attorney would be helpful.

There’s probably a way by titling the property in both names, but you’d be on the hook for property taxes. An attorney could answer that.

Tax wise, unless the parent’s estate plus gifts made during his/her lifetime exceed almost $13 million, there’s no issue. If he/she owned property and you received it upon his/her death, then you’d get a step up in basis.

There are general considerations here, mostly simplified if there’s no financing of either land or building, but still… split ownership between the two brings complication in terms of taxes and probate.

These are local and state-specific issues. You will NOT be able to get complete advice on this from even your SigForum Bar members. Find a local RE and/or E&T attorney (you may want to consult with both) to ask these questions.

-Rob

I am not a lawyer but I have been involved in RE all of my life and I am old.

If there is no financing involved there is no reason to sell the land. Even if there is financing you can still do a land lease it is just more complicated and sometimes more expensive.

If the idea is to have the land returned to the current owner, why have it leave the owner in the first place?

The fastest and easiest is to just lease the land to the parents.

If it was my parents, I would lease it for a dollar give them a life estate lease and on death have the lease end.

If you need money to cover the taxes, have the lease cover the prorated expenses of the taxes.

The improved structure will increase the taxes on unimproved land.

You need to have an experienced Real estate lawyer draw the lease.

This also prevents problems with anyone that also has a claim on the parents estate on death.

There is nothing at all complicated with what you are proposing. As a mater of fact, we did something very similar. Years back, a five acre tract with an old barn on it became available for a song, it adjoined our lake home so the wife and I bought it. My dad later built a small home on that property. We owned all of the land free and clear.

Seeing as how there are no lenders involved with your proposal, your parents could build a home on your land subject only to local building codes and they of course would be responsible for the local and state taxes on those improvements. You could lease them the land as mentioned above, but the only advantage to that is it would give them protections if anything should happen to you, as the owner. If you suddenly died, they could continue to live there regardless of how your estate ended up. You would want to record that lease.

I spent thirty years in title insurance.

We recently tried to buy a property that someone built a second house on. I don’t know why but there was no bank that would finance it. They only considered one house in the appraisal.

I would consult a lawyer in the state the land is on... or at least a knowledgeable estate person. There is for sure a way to do it but it needs to be done to the laws of that state for sure. part of the equation is on death of the parent not only who gets the land but also who gets the house that is now on the land.

Look into a life estate.

Keep the land in your name, let the parents build on it since it's a cash deal, no lenders being used is an interesting idea.

The land lease idea sounds interesting, and if it works the way described, makes a lot of sense, in that you need to address the death of yourself first, or, the parents, and survivorship of the land use.

Your parents don't want/need to lose all equity value in the home should something happen to you and your spouse, and siblings decide they want to sell everything, displacing the parents.

I know everyone is cool and ok with everything, but until money is at stake you haven't seen the real issues between siblings and family members come out...

A RE attorney that could advise you on state law and what you need to do to protect yourself/spouse and Parents as well as the best tax scenario is going to be money well spent, and an update to any wills that need to be done post building the house to direct your heirs and protect the parents might be needed.

Ianal. My family has been seriously burned to the tune of tens of millions of $ with an estate.

I believe a Trust is what you need. And possibly the advice of a real estate lawyer too.

I am a bit confused on who is who in your scenario. A parent owns land and a child would live in a home yet to be built? Or a child owns the land and the parents would live in the home to be built?

In any case, the Trust is akin to a corporation in the sense it is a legal entity that can own stuff. If the property is titled to the trust, when a person dies it is a non-event for the property. The trust is still the owner.

If you are the landowner and it is your parents building the home, I assume the desires are for you to own everything if they die before you do. If you die before them, the desire is they can stay there until they do die, and then the property would pass to your heirs.

The Trust could be written to do that. It owns the land and home. Your parents have the right to live there as long as they like. Certain obligations are on you and others on them, e.g. taxes and cost of upkeep. Upon their death you or your heirs gain sole right to the property.

You must have a good local estate atty experienced in trusts write it. Very specific things need to be in the words. A wrong phrase or missing word can cause problems.

The reason for a trust is twofold. First, it is ironclad unlike a will. Wills can be changed. Wills can be challenged. Second, it avoids probate. Probate can take years. My father's estate is close to 3 years stuck in court, not even to probate yet. Nobody contests anything. It is simple, with the only asset a condo which is in limbo sitting empty but costing big $ in taxes and HOA fees. Nobody can live there, and it can't be sold. A trust bypasses all of that.

My grandfather's 2nd wife changed her will after he died, directing all his money to her kids. Originally their wills both said when they both had died to split everything amongst his kids and hers evenly. He died first, she changed her will. This happens all the time. Do not rely on wills or verbal assurances.

quote:

Originally posted by HRK:
Keep the land in your name, let the parents build on it since it's a cash deal, no lenders being used is an interesting idea.

The land lease idea sounds interesting, and if it works the way described, makes a lot of sense, in that you need to address the death of yourself first, or, the parents, and survivorship of the land use.

Your parents don't want/need to lose all equity value in the home should something happen to you and your spouse, and siblings decide they want to sell everything, displacing the parents.

I know everyone is cool and ok with everything, but until money is at stake you haven't seen the real issues between siblings and family members come out...

A RE attorney that could advise you on state law and what you need to do to protect yourself/spouse and Parents as well as the best tax scenario is going to be money well spent, and an update to any wills that need to be done post building the house to direct your heirs and protect the parents might be needed.

You make some good points. The OP does not say if he has any siblings. The only area of contention here that I see would be a claim from those siblings (if any) for the value of the improvements and any equity that has accrued. They would have no claim to the real property of the OP, but they might have a claim to the value of the improvements and any equity. They would have no adverse possession claim as that would be defeated by the recorded lease.

Retaining a life estate within the Lease is also a good idea. All of this could be incorporated within a properly executed will of the parents.

Thanks guys. Great info.
There is only one parent and a single sibling on that side.

Our thought was to sell the property to the parent As the estate of the parent is dedicated to the sole sibling via a will.

Some kind of a life estate and or lease might be a better option.

quote:

Originally posted by old rugged cross:

Our thought was to sell the property to the parent As the estate of the parent is dedicated to the sole sibling via a will.

I'm not familiar at all with the life estate. Having said that, do not rely on a will. Stuff happens all the time preventing what was expected from actually happening.

A simple example is someone challenges the will. Or a surprise half sibling or former spouse pops up. Or the elderly person changes their will either for good reason or due to being manipulated.

Another consideration is Medicare/Medicaid for the elderly person. If they own anything, the government can take it to pay for their bills such as extended care facility costs. If they are merely tenants with no ownership rights, the property can not be taken.

You should consult with a good local estate attorney who knows your local laws and how to protect everything.

The correct answer will vary somewhat by state.
Where I live you I think it's referred to as a survivorship deed.
In other words upon death the property goes to the survivor and doesn't have to go through probate.
Also the valuation is established for tax purposes on that date, and if there has been a lot of appreciation, can mean a big tax savings.
The real answer, call an attorney in the area you live.

quote:

If the idea is to have the land returned to the current owner, why have it leave the owner in the first place?

^^^ This would be my thought.

The "special" lease is a good idea too.

I'd suggest a ground lease of the land for the specific purpose, no right to sell, sublease, or otherwise encumber, terminable by you in writing with notice, or on death of the lessee.

Absolutely have this kind of transaction done by a competent real estate attorney in your jurisdiction.

If someone builds on a tract of land owned by another, they don't generally acquire any ownership in the land. The building becomes part of the land and is owned by the land owner.

There are many ways to accomplish what you want to do here. Consult a real estate lawyer in your state about what you want to do, exactly and get some solid advice about the best way to do it.

+1 for get a local real estate lawyer. Nothing you're describing sounds too onerous.