Do Probate and Legal Expenses Increase the Basis of Inherited Real Estate?

[abhester3]

A parent owned significant real estate when they died and my sibling challenged the will causing sizable legal bills for me as estate administrator obligated to defend the will and preserve the estate. In addition, there were probate, property taxes, etc over the years while this all went through the courts. All expenses were out of MY pocket as my hands were tied by the estate being prohibited from liquidating assets to pay even property taxes and regular expenses due to the ongoing litigation. The sibling was out nothing as they hired an attorney on contingency to be paid a % of auction proceeds from the forced sale of the properties if they won. When the will was finally found to be valid, my sibling took their share and refused to pay past probate expenses, including taxes on their property, much less legal fees. The judge did not award legal fees or past expenses and the properties were distributed as the will dictated. Fast forward several decades and I'm selling my property. Is my basis increased by the legal fees, probate and estate expenses, and unreimbursed property taxes that I paid defending the will I was a beneficiary of and preserving the estate I was administrator of? 

[M-MTax]

It is sad but you can't increase your basis by those expenses. You could have been reimbursed by the estate or you could sue your sibling but there's not much other recourse and that includes adding those expenses to your basis.

[abhester3]

Even the legal fees that were spent on keeping what the will said was to be mine? There was no cash in the estate to pay myself, I would've had to sell property to reimburse myself but it was locked up with lis pendens in lawsuit. I look at it like a RE sale, if there is litigation or are unexpected legal expenses due to title problems, encroachments, etc. , those expenses count against your proceeds... Basically, without paying the legal fees, I wouldn't have the property and might've of even then been sued by the same sibling if they were then dissatisfied with the outcome they tried to force as I then wouldn't have properly discharged my duties as the named administrator. It's maddening to even think back on that time!

[M-MTax]

Yes because you advanced your own personal funds to the estate which should not have been necessary or at least it should have been ordered that you would be reimbursed from the sale of estate property. This wasn't a title dispute.....it was a challenge to the will and the estate should have borne the expense.

[abhester3]

Hmmm, the legal bills for the the will contest were all in my personal name, not the estate, while the rest of the bills were in the name of the estate. Loans to the estate were for the property taxes, probate, etc, the normal admin expenses, and the legal was paid with personal checks... We asked the court for legal fees, court costs, and estate admin expenses after it was over, pleading that the will had specific language about contests and that the party losing the fight paid in the end but the court came back with no legal fees and just completely ignored the rest! Given the state laws where this was and that we were already bled white by lawyers, the legal advice was to not begin an appeal process of that battle after winning the war; just incorporate it all into the basis of the property when it was sold or inherited by the next generation one day. Of course, the lead attorney is long deceased now and the entire experience changed the course of my family's life for the worse, to now learn we may not be able to even use the expense spent trying to keep what was left to us is deeply disturbing.  I guess it's time to fire up the money machine and pay for some pros to see where this might go beyond the usual tax software that isn't really designed for these kinds of challenges. 

[M-MTax]

Tax law is tax law......software doesn't make any difference whatsoever.

The normal course of events when funds are advanced to an estate is for the person advancing those funds to be reimbursed from the sale of estate property PRIOR to any distributions being made to beneficiaries......obviously that's not what happened here for some reason.

[abhester3]

The reason it didn't happen was that every single asset was identified in the will to go to particular heirs, I'm talking even down to file cabinets! To sell assets to pay estate expenses would have meant that one heir or another would not get what they were left in the will. It was explained to me that the administrator of the estate had to do everything in their power to see the terms of the will were followed, otherwise they could be found liable. At the end, we asked for legal fees and estate expenses hoping the judge would order everyone pay their share but the judge didn't award legal fees and just ignored the rest. I still can't understand why at least legal fees can't be added to basis. For instance, if I would've been the one challenging the will and prevailed, wouldn't those legal fees be part of obtaining the property in question? As it was, I was wearing two hats: one as administrator of the estate & one as beneficiary of the will, those legal fees were part of obtaining the property and without those legal fees I certainly wouldn't have owned the property to be able to sell it...