Get your title types straight
By Benny Kass, Special to the Times
Published December 8, 2007
Q: I bought a home with my mother as joint tenants in common with right of survivorship several years ago. I have been paying the mortgage. Recently she gave my brother a quitclaim deed for her portion since he has been living with her. Is this legal? The home is in South Carolina.
A: Let's do a quick review of Property Title 101. There are three ways in which title can be held: 1 sole owner; (2) tenants in common, which means two or more people own property together. (Typically when two people hold title as tenants in common, each owns 50 percent, though that need not be the case. They could own it 70-30 or any other proportion they wish. If one of the tenants in common dies, his or her interest must be probated and will be distributed according to the terms of his or her will. If there is no will, your state law spells out who will inherit that interest. The other tenant in common doesn't get the property unless the co-tenant's will so states.); (3) joint tenants with right of survivorship. Here, two people own the property equally. This is the way married couples typically own their homes. On the death of one of the owners, the surviving joint tenant automatically gets full title to the property. No probate is needed. Some states now allow unequal percentages in a joint tenant arrangement.
How was title held in your case? You mixed up two of the three title possibilities. I'm going to assume you meant that the title was held as joint tenants with survivor rights. The specific answer to your question is that any joint tenant has the unilateral right to sever (break) the tenancy by conveying a deed to a third party, in this case your brother. Transfer of a joint tenant's interest in a property does not require the consent of the other joint tenants.
If your brother is not paying his share of the mortgage, you should consult your attorney to determine what rights you have in the state of South Carolina.
Q: I am considering paying off the second mortgage for my daughter on her house. Are there any tax consequences for either of us?
A: Under federal law, you have the right to gift your daughter (or anyone else) up to $12,000 annually without filing a gift tax return or paying tax. If your daughter is married, you can also gift up to $12,000 to your son-in-law. If you are married, you and your husband can each give up to $12,000 to the daughter and son-in-law for a total of $48,000 gift tax-free.
The gift in any amount is tax-free to your daughter. However, should you gift her more than the $12,000, there are gift tax implications for you. You need pay no federal tax for this extra gift as long as your total lifetime gifts have not yet exceeded $1-million. But you will have to file a gift tax return, and it may impact on your estate when you die. This is rather complicated, and you should consult your own tax advisers regarding your specific needs.
But let me ask you a question. What is the interest rate on that second mortgage? If it is really low - say, in the 6 percent range - have you considered putting that money in a secured investment instead of paying off the mortgage? If you can earn more in interest than she is paying, it may make more sense to invest the money for her. Your daughter does derive some tax benefits by deducting the mortgage interest, which would be a consideration if she were to pay off the second loan. Crunch the numbers with your financial adviser and see what makes the most sense.
E-mail Benny Kass at email@example.com.