December 2010 Archives

December 31, 2010

Adding Names to House Title

house.jpgDear Liza: I live in Illinois my mother owns a home worth about 250 to 300K. My mother seems to think there is some benefit to having my brother, sister and myself added to the title and having her removed.  I know the current lender will not approve of that unless we refi with our names.  If we were able to refi and remove my mother or if there was no mortgage balance is this a good idea?  All she is trying to do is ensure that we do in fact inherit this house when she does pass on.  Wouldn't naming us as equals in the will do the trick?  Will the house and any estate still go to probate even if there is a will and we are all alive and civil with one another?  If your Mom just wants all three of you to inherit the house, she should use a will, or a living trust, to make sure this gift is made upon her death, not put you on title now. Putting you on title now means that she's made a gift to each of you of 1/3 the value of the house, means that her house is subject to your creditors, and means that all three of you get the house at her original cost basis (what she paid for it). Inheriting the house upon her death means that she controls it during her lifetime, and that upon her death you three inherit it at the current market value (which probably means you'd pay less in capital gains taxes if the property is subsequently sold). If she makes the gift by will, you will be subject to probate, regardless of whether all three of you get along (which is, of course, great, but legally irrelevant). If she creates a living trust, the property can pass to you three free of probate. 
December 20, 2010

Congress Passes 2 Year Extension of Estate Tax


Dear Liza: What did Congress just pass last week with respect to the estate tax? Congress passed a big, complicated tax bill last week. Many of its details will have to be worked out in the coming months, as the IRS issues forms and regulations that will clarify some of what's in the bill, but, for our purposes, here are the highlights:

  • The bill expires in two years.
  • Individuals can pass up to $5 million to their heirs free of the estate tax.
  • Surviving spouses will be able to use the unused exemption (that's that $5 million) of the first spouse to die, so couples will be able to pass $10 million in assets free of the estate tax.
  • The maximum federal estate tax, gift tax, and generation-skipping tax rate is 35%.
  • Individuals may make gifts of up to $5 million free of the gift tax, but this amount is reduced by the amount of previous gifts.

Estates of those who died in 2010 have two options: they can use the new rules, and pay tax only on assets over $5 million, or they can elect NOT to pay the estate tax, but instead pay capital gains on most of what they've inherited using the decedent's tax basis, not the asset's value at the date of death. This "carry-over basis' rule is one of the main areas in need of clarification, and if you have any question at all about whether or not it would benefit you, please see an estate planner and an accountant in the next nine months.

Here's a good summary of the bill in the New York Times.