Ripped from the Headlines
Law and Order did it all the time on TV: take a story from the news, tweak it, and present it as fiction. Is that legit, or not?
Depends. If you have an original twist on the story, if your characters are clearly not the actual people involved, if your setting or the outcome are notably different, fair game. On the other hand, you can't use actual people as characters in your story. That opens the door to litigation.
To clarify: It's perfectly fine to let your characters mention a real character: "I mean, he's a popular singer, but he's no Justin Bieber, you know?" is okay. Having Mr. B. actually interact with your imaginary characters is a no-no.
Use your imagination if you're using elements of real life in your fiction. If you're writing a mystery thriller and you have in mind a real-life murder in which a husband drowned his wife, see how you can turn it around. Maybe the wife killed the husband. By, say, shoving him off a mountain trail instead of drowning him.
Or maybe, though the husband in real life was convicted of the killing, in your story a different husband is falsely convicted and instead someone else committed the murder. The butler. Or someone from his wife's past whom he doesn't even know. Or....
Law and Order knew its stuff. The show would sometimes have a disclaimer, something on the order of "Although there was an actual case bearing some resemblance to the story, this drama is an act of fiction and does not represent any real persons or events." They'd often even reference the real crime: If the detectives were on the trail of a serial killer,one might say, "This reminds me of the Son of Sam killings all those years ago."
Researching true stories is fine. It helps you get a sense of realism into your work. However, don't cross the line and begin using actual living people as your characters.
Ah...but historical fiction...now, that's a different animal. More about that later.