March 17, 2011
Question: Dear Heather, to avoid probate, I’m thinking of adding my married son on the deed to my house as a joint tenant with right of survivorship. When I die does my house become community property with his wife or does he inherit it alone? In case of divorce would his wife have any claim on the house?
Answer: While adding your son as a joint tenant with right of survivorship will avoid probate on your death there are many other issues that are created. First, by adding your son you made a gift of one-half of the property to him. The IRS will want you to file a “gift tax return” if the value of the gift is more than $13,000. Gifts below this amount do not need to be reported.
The tax due, if any, would be payable by you, the gift giver. However, Congress recently passed a law that allows taxpayers to gift up to $5 million total during their lifetime without paying the tax (the return is still necessary if the gift is over $13,000). That law is only good during 2011 and 2012.
When you die your son will receive your half of the property as an inheritance. Under community property laws an inheritance is his separate property, as long as he does not commingle it (put his wife’s name on it).
If your son keeps the house only in his name, it will remain his sole and separate property, even in a divorce. But to remain separate property, he must pay all property-related expenses (taxes, insurance, maintenance, etc.) from inherited or gifted money kept in a separate account in his name only. If he later sells the house, his wife would not have a claim to the sale proceeds.
A word of caution . . . when you add your son to the deed he becomes an owner of the property. If his is sued or otherwise has creditor trouble, your home could be sold or a lien placed against it. There are also capital gains tax implications to making a gift during your lifetime. You should consult a tax adviser or Sacramento probate attorney to decide if revising your property deed is the right choice.
If you’re ready to get the help you need in this area, I invite you to give our office a call at (916) 241-9661 and schedule a Peace of Mind Planning Session. These sessions are normally $750, but you can come in free with the mention of this article. Call today to reserve your space (limited to first 10 callers).