Now after my parents death we have a deed of trust in their run down, never repaired, dump of a townhouse. 

Death of owner?

Tenant in the last 2 weeks has claimed landlord agreed to rent a property from Tenant and owes Tenant over $100,000 for it (no mention of it in previous 8 months since Landlord's death). 

We qualify to purchase the land right now as is and have no timeline to purchase as our right to first refusal is upon my Grandmas death which till then she pays the taxes and holds onto the property.  

Part of the 1031 is you are NOT ALLOWED to take possession of the proceeds of your sale so you have to hire a company to act on your behalf, $$$ 2) You have a limited amount of time to identify and then close on the replacement property or else the initial sale becomes a taxable transaction. 3) Finding a replacement property in that timeframe may force you to overspend $$$ :-( on the next property(s) just to get in done. 4) The tax paid now is less then the associated costs of completing a 1031 and the possible cash out refi. 5) Fear of the unknown.If you want to create wealth for multi-generations you could 1031 all your small investments into one real large one (SFR and duplexes into an apartment complex) then when you pass your heirs will get the asset at its stepped up value (value on the date of your death) and could sell it at that price with no tax owed.

If you waited, and inherited the house from your father at his death, your cost basis would be the fair market value of the house at the time of his death.

What happens if someone decides to leave the partnership or something unforseen happens to one of the partners (death, accident, illness)? 

Yes - major issues (death or major injury) will mostly likely involve a lawyer on contingency.  

I'm thinking that we'd have to include a death cert and copy of the will appointing an exector/exectress to establish that the person we have signing is legally able to do so.

Death in family, lost job, illness etc...None of it matters.