DEAR BOB: We want to sell our rental house and build a house at the back of our adult children’s property. This would not be a lot split so the ground will remain in their names. However, the house will be ours to rent out until such time as we want to move into it ourselves. Will this qualify for an Internal Revenue Code 1031 tax-deferred exchange? – Rachel H.
DEAR RACHEL: No. The situation you describe will not qualify for an Internal Revenue Code 1031 tax-deferred exchange.
Purchase Bob Bruss reports online.
The reason it is not eligible is you won’t be purchasing a qualifying property of equal or greater cost and equity held for investment or use in a trade or business with the sales proceeds from the rental house.
Building a rental house on non-owned property just won’t qualify. For details, please consult your tax adviser.
DO PROPERTY LIENS “EVAPORATE” OVER TIME?
DEAR BOB: I’ve been told that some property liens “evaporate” over time. Is this true? – Albert B.
DEAR ALBERT: The answer depends on the type of lien that affects real property. For example, in California a recorded judgment lien expires after 10 years if it is not renewed by the judgment creditor for an additional 10 years. Then, it expires.
But most liens affecting real property never go away. Property taxes always affect a property until either paid or the tax collector holds a tax sale for the unpaid property taxes. For exact details on the different types of liens affecting real property, please consult a local real estate attorney.
MENTIONING PROPERTY IN A WILL WON’T AVOID PROBATE COSTS
DEAR BOB: Our elderly parents own their expensive home free and clear. They do not have it in a trust. But they seem to think having their home mentioned in their wills is enough to avoid probate costs and delays. Is this correct? – Merle D.
DEAR MERLE: No. Your parents are mistaken. Unless your parents leave a small estate that is exempt from probate proceedings, their assets, which are subject to their wills, are usually subject to probate court costs and delays. Some estates linger for years in probate court. Even simple probates can take six months to a year, often longer.
The best alternative is for your parents to create a revocable living trust and then deed the title to their home and other major assets into their living trust, which will avoid probate.
Also, if one or both parents become incapacitated, such as with a severe stroke or Alzheimer’s disease, the other co-trustee or an alternate trustee can manage the trust assets. Details are in my special report, “Living Trust Pros and Cons for Avoiding Probate Costs and Delays for Your Heirs,” available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com. Questions for this column are welcome at either address.
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