Law talk: Limit tax liability with father’s land

Q. My dad has a question about his property and his attorney and accountant did not know the answer. He lives in Illinois and bought some property up in Wisconsin in 1987. My mom and dad’s names are both on the property. My mom passed away last July and we don’t think she had any beneficiaries on the property.

My dad talked to his attorney about putting us three kids on there so it won’t go to probate. The attorney told him he would have to do a quitclaim deed or something like that since they don’t have trusts in Wisconsin. The attorney was not sure if capital gains would have to be paid when the quitclaim deed is filed, or is that only if the property is sold?

If my dad does a quitclaim deed and the property is put in all of our names to keep it from going to probate, and then something happens to my dad or the property is sold, will capital gains still need to be paid?

A. First, I would perform a title search on the property. It would be a good idea to determine who exactly is in title prior to planning your next move.

Most tax professionals generally advise against conveying property from parent to a child or children prior to the parent’s death. If the children take the property during the parent’s life, they assume the parent’s basis in the property, which is the amount the parents paid for the property plus or minus depreciation, improvements and other factors that affect basis. In many cases, the parents purchased the property long ago and there would be a large capital gain upon the sale — the gain generally being the difference between the basis and the net proceeds from the sale.

By taking the property upon the death of the parents, the basis is “stepped up” to the value of the property on the date of death. Now the property can be sold with little or no capital gains taxes.

The attorney your dad spoke to indicated they don’t have trusts in Wisconsin. I am presuming he was referring to land trusts. However, your parents could create a living trust and convey the property into this trust. Upon your parent’s death, a successor trustee administers the trust and is responsible for carrying out the terms and provisions of the trust, which could certainly include conveying the property to the children.

There are many other factors that affect your parent’s estates and their estate planning. Before doing anything, your family should seek the advice of a tax professional who can review your family’s entire financial picture and make recommendations accordingly.

Q. My son rented an apartment at college with three other guys. They signed a lease from Sept. 1, 2011, through Aug. 31, 2012.

One of the guys flunked out and the other is more or less living with his girlfriend and has stopped paying rent. My son and the fourth guy gave the landlord their one-quarter share each in early January. The landlord told them that was not acceptable and if they didn’t pay the entire month’s rent, they would be evicted. Neither my son nor the fourth guy can afford any more than they are paying.

In early February, they attempted to again pay one-quarter of the rent each, but the landlord didn’t accept it. He gave them a 5 day notice a few days later and they have now been served with a summons and complaint for eviction.

Are the remaining tenants responsible for the entire rent payment? Can my son and his friend be evicted? Any ideas would be greatly appreciated.

A. I cannot offer any definitive advice without reviewing the lease. I can tell you from experience, however, that most college leases are written making all the tenants jointly responsible for the entire obligation. That is why it is very important to be very careful who you get involved with in these transactions.

If your son’s lease was written this way, he could be held responsible for the entire obligation. To deepen your headache, the obligation could be the rent through the entire term of the lease plus court costs and attorneys fees, though if your son is evicted, the landlord would have a duty to “mitigate” his or her damages. This means the landlord must attempt to locate another tenant and in the event another tenant is located, your son is off the hook for rent from that point forward.

Most colleges have legal assistance available to students. Have your son contact one of the schools attorneys to discuss his case. This is a very common occurrence and the attorney may have some thoughts on how to resolve this.

Ÿ Send your questions to Attorney Tom Resnick, 345 N. Quentin Road, Palatine, IL 60067, by email to tdr100@hotmail.com or call (847) 359-8983.