Keep the Family Home… or Sell It? The Hidden Financial (and Tax) Difference
When parents pass, the children often must decide whether to sell the family home and divide the proceeds or have one child keep and live in it. While selling may seem simplest, it is often the most expensive option.
The Hidden Cost of Selling
Selling typically incurs 6–6.5% in transaction costs, including commissions, preparation, taxes, and closing fees. In one example, this meant nearly $50,000 lost. By contrast, a trust loan allowing one beneficiary to retain the property may cost around 3% of the loan amount, potentially saving tens of thousands. This difference directly affects each beneficiary’s share.
More Money, Faster Distribution
Selling can take months, while a properly structured trust loan may be completed in as little as 10 days. This allows beneficiaries to receive distributions more quickly while preserving more value.
The Real Game-Changer: Property Taxes
California’s Proposition 13 caps property tax increases, often resulting in low tax bases for long-held homes. Under Proposition 19 (and formerly Prop 58), a child may inherit this low tax base if certain conditions are met:
- The child must typically use the home as a primary residence
- The transfer must be properly structured through the trust
When done correctly, families can save thousands annually in property taxes—often over $6,000. If done incorrectly, the property may be reassessed, significantly increasing taxes.
Why Structure Matters
Families often lose these benefits due to improper handling:
- A simple buyout between siblings can trigger reassessment
- Personal guarantees or funding may be treated as taxable transfers
- Unequal distributions can eliminate tax advantages
The solution is a properly structured non-pro rata trust distribution:
- One child receives the property
- Other beneficiaries receive equal value, often funded through a trust loan
This approach preserves tax benefits and ensures fairness.
The Bottom Line
Selling the family home may seem straightforward but often results in less money, higher taxes, and longer timelines. With proper planning, families can preserve wealth, maintain low property taxes, and keep meaningful assets in the family.
A well-designed estate plan and administration does more than transfer assets—it protects them. If your family is facing decisions about the family home, contact Nicolai Law Firm for guidance.
Essential Ingredients of a Traditional Estate Plan
1. Revocable Living Trust
2. Pourover Will(s)
3. Durable Financial Power(s) of Attorney
4. Advance Healthcare Directive(s)
5. Deed Transferring Real Property into the Trust
Most individuals and families need these five components. Nicolai Law Firm prepares comprehensive estate planning packages including all of the above. If you need a plan created, reviewed, or updated, contact us at 310.714.7034 or info@nicolailawfirm.com. We have you covered!
