You might want to consult a real estate attorney, but it seems to me that you and your brother could quit claim your ownerships in the home in favor of your sister. You both would report that as a gift which would be an amount equal to your capital gain but since the estate tax exemption is over 12 million, there would be no gift tax liability. Of course, your sister would then be responsible for paying the total capital gain when the home is sold. Mary could give Peter a gift after the sale of $10,000 to make him whole. No gift tax form is necessary for that amount.
