Dear Benny: I am paying cash for a condominium that my daughter will live in, and I am going to settlement shortly.
I was planning to have the title in my name only and have the property willed to her. Would this be better than having her name included on the title (joint ownership with rights of survivorship)?
The will would convey the condo 100 percent to her and other assets split between her and the grandchildren. There are no other contestants to the inheritance. — David
Dear David: That’s an excellent question and I am glad you have given thought to this issue. All too often, people make rash and hasty decisions and then later regret their actions.
Let’s look at both options: (1) taking title with your daughter as joint tenants with rights of survivorship. On your death, the house will automatically be hers. This is known as a “transfer by operation of law.”
Perhaps the main advantage is that your daughter would be able to avoid having to probate your estate. But since there are other assets, unless you set up a trust, probate will still be necessary. You should consult an attorney to guide you through the process of creating a trust and weigh the pros and cons of this approach. However, I see two potential disadvantages here.
First, it may become necessary in the future for you to need money, and you may need to sell the house. Although you may have a great relationship now with your daughter, she may balk at selling if she has an ownership interest in the property. Second, you may be subjecting her to potential tax obligations when she ultimately wants to sell.
Congress recently reinstated the stepped-up basis. That means that when you die, if she inherits the property, her tax basis will be the market value of the house on the day you die. Thus, if she sells the house for that value, she will not have to pay any capital gains tax. But if she is on title with you, as joint tenants, she will be a one-half owner, and thus her basis will be 50 percent of the purchase price.
On your death, while she will get a stepped-up basis, the bottom line is that the numbers will not be as high as if she inherited the entire property.
Or if she inherits the property, the analysis is the reverse: She will have to probate your estate, but her basis for tax purposes will most likely be higher than if she was on title with you.
It’s a close call, although my preference has always been to let your children inherit the house. Discuss your situation with your own tax advisers.
Dear Benny: My stepfather left my mother in the early 1960s.
She is still in the house that they purchased (jointly) when they were married. My mother paid off the mortgage and continues to pay the property taxes.
My stepfather is still alive, but unfortunately he suffers from mental illness. We are concerned that should something happen to my mother, would he be able to return to claim the house? — Conrad
Dear Conrad: The first thing you should do is determine how your stepfather and mother hold title.
It may be possible to change the title so that each of them hold title as tenants in common. This means that on your mother’s death, for example, her share of the property will be distributed in accordance with her last will and testament. And if your mother does not have such a document, I strongly suggest that she talk with an attorney and have one drafted and signed as soon as possible.
At least, this way, you will inherit half of the property.
If that does not work, your mother may have to file suit against you father-in-law, claiming reimbursement for half of the expenses she has incurred, such as real estate taxes, insurance, repairs, etc. There is probably a statute of limitations in your state that would limit the number of years that she can claim, so it may be prudent for her to seek legal advice now and proceed to take all protective steps.
This is not an easy situation, and your stepfather’s mental and physical status will be a major hurdle in a court of law.
But, clearly, you want to protect your mother — and possibly your inheritance — so don’t put this off too long.
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 firstname.lastname@example.org.