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Without a will, proving gift intention becomes burden

Dear Benny: I resided with a 71-year-old male who died Nov. 12, 2010, with no will, but I took care of him since 2002 and lived with him since 2005 because his health was diminishing.

His family had basically abandoned him, never visiting or making any type of contact with him.

I want to know if there is any way I can keep the house as my residence. We discussed his getting a will, but he died before he could get a lawyer. He was going to leave the house to me. –Carl

Dear Carl: You have a difficult situation.

I have often joked that “when there is a will, there are relatives.” And in your case, because there is no will, I suspect that his family will suddenly claim to be his best friend and will want to take possession and title to the house.

When a person dies without a last will and testament, this is called intestacy. In simple terms, if you do not have a will, the laws in the state where the person died — or in some states where the property is located — will dictate who will get the property.

You have a heavy burden to prove that your friend wanted to give you the house on his death. I am concerned that you will not be able to show sufficient evidence should the relatives want to claim ownership by virtue of the laws of intestacy in your state.

I suggest you, or perhaps your attorney, talk with the family to see if anything can be worked out. Perhaps you can buy the house for a nominal amount, or perhaps the heirs will give you some money just so that you go away and don’t file a lawsuit claiming ownership.

I wish I could give you better advice, but there is a moral to this story: If you own real estate, make sure that you have a valid, enforceable and current last will and testament. It may cost you some money for legal fees to have this accomplished, but it will save your heirs — or whomever you want to have the house on your death — a lot of aggravation and money in the long run.

Dear Benny: Your recent column featured a question from someone who wanted to give a house worth $459,900 to his aunt but didn’t want to pay gift taxes on it.

My understanding is that you don’t have to pay gift taxes until the total amount you give exceeds $1 million. Thus, this person shouldn’t have to pay any tax on that gift but will have to fill out some forms. –Dawn

Dear Dawn: You are correct.

If you gift $13,000 or less per year, there is no tax consequence to anyone. If the gift is over that amount to any one person, that amount if deducted from the giftor’s lifetime gift tax applicable credit amount.

And you are also correct that this amount remains at $1 million.

But, when dealing with real estate, my concern is that the tax basis of the donor — the person giving the gift — becomes the tax basis of the donee.

In other words, if I bought my house years ago for $25,000 and gift it to my nephew, even if the property is now worth $1 million my nephew’s basis is mine. So in my example, assuming I made no improvements to the property, which would have increased my tax basis, if my nephew sells the house for $1 million he would owe the IRS $146,250 in capital gains tax. ($1 million minus $25,000 times 15 percent). He would also owe any local or state taxes.

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 benny@inman.com.

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