DEAR BENNY: I am a widow with a very small estate and would like to avoid probate for my children. I own my own mobile home but not the property it sits on. If I added my son’s name to the title, would that avoid my home having to go through probate? –Audrey
DEAR AUDREY: I don’t know what state you live in, so I can give you only general advice. When you die, your mobile home will be an asset of your estate and will have to be probated in order to have it legally transferred to your son.
You can add his name to title, but that would be considered a gift and there may be tax implications involved. You have to discuss your own situation with a financial adviser.
And depending on how title will be held, probate may be necessary. If you and your son will own the property jointly (usually called joint tenants with rights of survivorship), probate will not be needed; on your death, the property will automatically go — by operation of law — to your son.
But there is a more major problem, namely whether it makes sense to transfer now or let your son inherit the home on your death. Let’s say you bought the property for $20,000 and it is now worth $50,000. Your basis for tax purposes is $20,000. If you give half of the property to your son, your basis will be $10,000 and your son’s basis will be the same. Under law, the receiver of a gift takes on the same basis as the giver of the gift.
Prior to 2010, we used to have the stepped-up basis. That meant that on your death, your son’s basis would be the value of the property at the time of your death, which, in our example, would be $50,000. So if he sells it for $50,000, he will not have to pay any capital gains tax. On the other hand, if his basis is low — because of the gift — there will be a tax to pay.
This year there is no stepped-up basis. So if you die this year, your son’s basis in the property will be the lower of your tax basis or the fair-market value. However, he can increase that basis by up to $1.3 million dollars (an extra $3 million can be added to assets that go to a surviving spouse).
So, unless your mobile home is up in the million-dollar range, the fact that the stepped-up basis does not exist this year is irrelevant. On your death, your son’s basis will be increased.
This is complicated and a financial adviser can assist you in making your decision. In simple terms: If you give him a gift of half of the property now, he may have to pay capital gains tax if and when the property is sold. On the other hand, if he inherits the property, he will have to probate your estate but may not have to pay the tax.
Of course, if he plans to live in the home for two years out of five before it is sold, he will be able to take advantage of the up-to-$250,000 exemption of gain (or if he is married and files a joint tax return, the exemption is up to $500,000).
I don’t know how your probate court works nor do I know the costs. However, you have to do the numbers before making that decision.
Benny Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to email@example.com.