Without name on title, mother has nothing if partner dies
By Benny Kass, Special to the Times
Published November 24, 2007
Q: My mother-in-law has been living with a 48-year-old man to whom she is not married in the same house for the past 10 years. His name alone is on the mortgage and the deed, although they bought the house together and both contribute to the monthly payments and upkeep. His health is failing. We are concerned that her interests are not protected because her name is nowhere on the mortgage, deed or any other paperwork. What can we do here?
A: Have you or your wife talked to your mother-in-law? Does she understand that she has no legal interest in the property and upon her partner's death has no legal right to remain there? The fact that she has paid part of the mortgage and upkeep means nothing if her name is not on the title.
If her partner dies first, which is what you seem to be suggesting, his heirs will get the house. Your mother will get nothing. The partner's heirs have no obligation to allow your mother to stay in the house. This fact should be called to her attention.
Q: My mother died in June leaving her home, which she owned free and clear, in equal shares to me and my two siblings. My brother is the executor of the estate and has petitioned the court to open probate.
I have heard that as children of the deceased owner, we qualify to own this house and pay taxes for it based on the price that my mother paid for it, rather than its current value (a difference of approximately $300,000). If we are able to keep the tax basis the same and we decide to sell the house after some time without ever living in it, will we be subject to a capital gains tax on the difference between its selling price and the price my mother paid? Must we sell the house through the probate process to avoid being taxed on a portion of the sale? What other considerations come in to play when inheriting a house and co-owning (or selling it) with trusted and true siblings?
A: Because I do not practice law in your state, I will respond only to the federal income implications. Your brother has retained counsel to institute probate (or at least he should have an attorney), and that lawyer should be able to answer many of your questions.
Let me give you this example: Say your mother and father bought the house years ago for $50,000. Their respective basis for tax purposes was $25,000 each. Your father died 10 years ago when the house was worth $100,000. In tax law, there is a concept called the "stepped-up" basis, which means that upon the death of one owner, the tax basis for the heirs is determined on the date of death (I am oversimplifying this for my example). Half of the value of the house was transferred to your mother, so now her basis is $75,000 (her original $25,000 plus $50,000 - half of the $100,000 that the home was worth when your father died).
Now, at her death, the property is appraised at $400,000. The three of you will inherit the house and your tax basis will be $400,000. If you sell it for that price, you will pay no capital gains tax. If you sell it for more than $400,000, the capital gains tax will be based only on that difference.
Of course, if one or all of you decide to move into the property and live there for two years out of the five years before it is sold, you can take advantage of the up-to-$250,000 exclusion of gain (or up to $500,000 if you are married and file a joint tax return).
E-mail Benny Kass at firstname.lastname@example.org.