My husband and his mother own the house in joint tenancy. My husband
wants to convince her to quit claim her part of house to his name.
Does she has to pay tax or my husband has to pay income tax if this
happen? What influence will have this event on property tax? If she
will not quit claim her part what is the best action is for my
husband, because he wants to borrow money against the property and
cannot do it now without mother's permition as a joint tenant? |
Clarification of Question by
tika1953-ga
on
03 Feb 2006 13:38 PST
We live in that house and pay taxes for all house, my mother-in-law
lives in senior center and doesn't pay property taxes.
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Request for Question Clarification by
weisstho-ga
on
03 Feb 2006 17:31 PST
Which state, please?
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Request for Question Clarification by
taxmama-ga
on
03 Feb 2006 17:48 PST
Dear Tika,
If the value of the house had gone up, or is
likely to increase by $500,000 or over,
don't have his mom quitclaim the house.
If she's that old, unfortunately, it's likely
that she will die in the next decade or so.
When she does, the house's value will increase in basis
(tax cost) to the market value on the day of her death.
If she quitclaims it to you now, the basis will be whatever
she paid for her share.
If the value of the house is not likely to increase
by $500,000 over the original purchase price, then
quitclaiming is fine.
Another alternative you have is for Mom to transfer her
title to a living trust, with your husband as trustee.
That way, he'll be able to borrow and do what he needs to,
without her having to go through the bother of signing all
the documents.
Generally, transferring title to your own living trust is
not a taxable event for property tax assessors.
This way, Mom still feels she owns something.
And the basis will still increase when she ultimately dies.
If you have any questions, please feel free to ask.
Best wishes
Your TaxMama-ga
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Oops - I meant to post that in the answer box:
Dear Tika,
If the value of the house had gone up, or is
likely to increase by $500,000 or over,
don't have his mom quitclaim the house.
If she's that old, unfortunately, it's likely
that she will die in the next decade or so.
When she does, the house's value will increase in basis
(tax cost) to the market value on the day of her death.
If she quitclaims it to you now, the basis will be whatever
she paid for her share.
If the value of the house is not likely to increase
by $500,000 over the original purchase price, then
quitclaiming is fine.
Another alternative you have is for Mom to transfer her
title to a living trust, with your husband as trustee.
That way, he'll be able to borrow and do what he needs to,
without her having to go through the bother of signing all
the documents.
Generally, transferring title to your own living trust is
not a taxable event for property tax assessors.
This way, Mom still feels she owns something.
And the basis will still increase when she ultimately dies.
If you have any questions, please feel free to ask.
Best wishes
Your TaxMama-ga |
Request for Answer Clarification by
tika1953-ga
on
03 Feb 2006 22:49 PST
Thank you so much for your help.
State is- California. I really like your advice about living trust but
is it possible to have Living trust between mother and son and is it
the same as community property? I am little bit confused.
I got this phrase from www.taxprophet.com: When a married couple owns
an appreciated asset as community property, the surviving spouse will
get a step-up in the cost basis to the fair market value at the date
of death of the other spouse.Married couples residing in California
with simple estate planning needs should consider this new tenancy.
While the revocable living trust is still a superior estate planning
vehicle for larger or more complicated estates, the new ownership
title is preferable to holding assets as joint tenants. Unfortunately,
this new legislation only applies to married couples. Domestic
partners or others holding property as co-owners cannot qualify for
community property treatment. If desired, the right of survivorship
can be terminated in like manner to terminating a joint tenancy.
The trustee of my mother-in-law's estate is my brother-in-law and we
have to bring avidence of benefits for estate to change the status of
our house.
Thank you, again very much for your respond.
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Clarification of Answer by
taxmama-ga
on
04 Feb 2006 11:45 PST
Hi Tika,
Bob Sommers, the Tax Prophet is a pretty sharp tax attorney.
He's right, community property applies to married couples.
But joint tenants, with right of survivorship, applies to anyone.
And even if your half of the property doesn't get a step-up in
basis, your mother-in-law's half of the property will get the increased
basis. It seems that you already own it that way.
http://www.wwlaw.com/title.htm
You asked if the property tax would increase if his mother
were to transfer the property to him. No.
In California, you can transfer property to family members
without an increase in property taxes. If look at the form
your county assessor uses for transfers, you'll
see the family members for whom there is no transfer tax.
There are also no taxes to a living trust created for yourself.
So his mother can establish a trust. And the trust can hold
title with your husband as joint tenants.
Just in case you're in Los Angeles, here's the rule in L.A.
http://www.lacountyassessor.com/extranet/Guides/prop58.aspx
But, Tika, you've introduced another element. Another son.
And one who controls your mother-in-law's estate.
Does your brother-in-law stand to inherit any part of Mom's share of
the house? (No. Since it's already in joint tenancy, right?)
As your mother-in-law's trustee, it's his job to make sure that
his mother's interests are protected.
So, why the trust? The trust is still a good idea, since, as
Mom declines in health, she can allow someone else (brother) to
manage her trust. The trustee can sign her documents on her behalf.
When she does die, there will be no probate.
There are no tax benefits from the trust during her lifetime.
It's still as if she owned her assets herself.
Now, what would I do if I were you and your husband and needed
to refinance for a good reason?
I'd convince mother and brother to transfer the property to the
trust for the long-term benefits. Since you're going to inherit the
house, not the brother, I'd agree to pay for the legal costs to set
up the trust - from the proceeds of the loan.
Then, I'd convince brother and mother that I would only refinance to
the extent of my half of the hoose. Her equity would remain untapped,
in case she needs money during her lifetime.
Does this help at all?
Best wishes,
Your TaxMama-ga
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Request for Answer Clarification by
tika1953-ga
on
21 Feb 2006 15:29 PST
We tried to reach my husband's brother to establish a trust, but he
asked what long term benefits will have trust for his mom and for us?
House does not go to probate if it is in join tenancy, but estate of
my mother- in-law still will pay tax for her part of house? May be
this point is good idea to establish a trust?
Thank you very much for help,
Tina
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Clarification of Answer by
taxmama-ga
on
22 Feb 2006 16:45 PST
Hi Tina,
The main benefit of the trust is that you don't need Mom's signature on
any documents. He, as trustee, can sign instead of Mom.
Another benefit is that the trust doesn't need to provide credit information
to get the loan refinanced. The trust's asset is half the house.
True, with joint tenancy, the house will pass to your husband when Mom dies,
without probate.
And the trust can hold the property as a joint tenant, too.
The main purpose of the trust is so Mom doesn't have to be bothered.
AND the other benefit is, once you establish the trust, all of Mom's other
assets, like bank accounts, etc. can be transferred to the trust so they
are not frozen at date of death.
Again, remind the brother that your husband will pay for the cost to set
up the trust - just so he can have the freedom to be able to get the loan
you two need. And Brother will have signature authority to ensure that you
don't borrow more than your share of the home.
Do you think this will help?
Of course, you can always skip the trust and convince Mom to agree to
the refinance and spend an afternoon with her signing loan documents.
She doesn't need to quit claim the property to do that.
Don't they want to help you?
Doesn't his brother care? As long as Mom's equity is still there
when or if she needs it...
He'll need your cooperation if he ever needs to draw money out of the
house for Mom's care! Please help you now.
Good luck!
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