Changing Names on Property Is Small Problem
Q: Fifteen years ago, when I was single, I bought some land and put my father on the title as a joint tenant. I have since built a house on the land and gotten married. Now, I would like to delete my father from the title and add my wife. What is the best way to do this without triggering a reassessment? Also, would this be considered a gift to me from my father, even though I have paid for everything involved with the property since buying it? --D.M.L.
A: Although you probably made your father a co-tenant in a probate planning move, you inadvertently created a mess that you could have avoided by simply leaving the property to your father in your will. That’s the bad news; the good news is that you probably can unravel this situation without suffering any tax consequences.
For starters, you have no property tax implications from the title switch. You can simply substitute your wife’s name for your father’s on the title without triggering a reassessment. Even if the county claimed there was a transfer--and you should be able to argue against this--there is a $1-million lifetime exemption for property transfers among family members. You should be able to avoid using a portion of that exemption by showing county officials that your father has merely quitclaimed his interest in your land back to its original owner: you. Putting your wife on the title won’t trigger a reassessment because inter-spousal transfers are exempt.
The gift tax issue is a little stickier, but from the facts you have presented, our legal experts have concluded that you should be able to successfully show that your father was never a true “co-owner” of the property. You can do this by showing that you paid all the expenses associated with the property, including mortgage and property taxes. You should also argue that it was never your intent to treat your father as a co-owner and that you only included him as a joint tenant to expedite the transfer of your assets if you died before he did. To buttress your case, your father should sign a letter stating that it was never his intent to acquire a beneficial interest in your property and that he agreed to become a joint tenant with you to ease the property transfer in the event of your death.
Q: Several years ago, my brother-in-law died. Over the years he had accumulated a large quantity of stock in his employer’s company, but unfortunately he kept no record of his cost basis in these shares. Now my sister-in-law is wondering how she can unravel this mess. Is there a way to determine the cost of shares purchased over the years? --N.E.L.
A: If your in-laws held the shares as joint tenants, your sister-in-law faces a difficult task of trying to reconstruct the trail of purchases. Although the cost basis of your brother-in-law’s share of the stock would be stepped-up to its value as of his death, your sister-in-law’s share would carry the original cost basis. If this is the case, she will be forced to make every effort possible to determine what quantities of the stock were purchased in which years.
Selecting a price for the shares will be difficult. Perhaps the employer can be of help; many companies keep records of shares sold through employee stock ownership programs. If not, then she should research the stock’s price variations over the years and try to arrive at as accurate a cost basis as possible. She may need to consult a qualified tax professional for help. It is your sister-in-law’s responsibility to be able to support whatever cost basis she puts on the shares if questioned by the IRS.
However, if your in-laws held the shares as community property, the issue is moot. Under community property laws, the surviving spouse’s share of marital assets is entitled to the same step-up in value as the deceased’s. If this is the case, then your sister-in-law’s share of the stock, just like that of her deceased husband, is valued as of his death.
Q: A friend needed money to buy a new house, so he sold his old house to me and his father as equal partners. But to avoid triggering a reassessment, my friend’s real estate broker suggested that he transfer title to the house via a quitclaim. This was supposed to have been done nine months ago. Meanwhile, I have made mortgage payments on this house in my friend’s name and have nothing to back up my claim that I am a 50% owner of the place. What is your opinion of this deal, and what should I do? --T.I . T.
A: My opinion, and that of my legal advisers, is that you have a problem, possibly a big one. Your should first consult a competent attorney who can tell you how to assert your interest in the house, and second, how to extricate yourself from this dreadful situation.
Meanwhile, run to your closest title insurance company and commission a search on the property. For all you know, this house may be owned by someone other than your “friend” and burdened with more debt than you think.
By the way, no “friend” would ever ask for the favor you performed. And you certainly weren’t thinking of your own best interests when you agreed to buy something and, in essence, not take a sales receipt for it. You compounded the mistake by agreeing to make the mortgage payments on something you have no proof that you own.
