Real Estate is Unique - Poses Unique Issues
Real estate is unique. Every parcel is unique. No two pieces are exactly the same. And so it goes, with estate planning Real estate is unique and poses unique issues that need to be addressed in each and every case.
First, it must be determined “how” real estate is owned. This is important because the manner of ownership dictates who it passes to, and whether it goes through probate or not. A perfectly good plan can be derailed if real estate is not owned properly to accomplish the desired objectives.
For example, assume two things. (1) “FRANK” has legal documents that say all his assets are to be given to his children (“DARLA and SUE”) in equal shares, and (2) the real estate FRANK owns is owned by FRANK and SUE as “joint tenants with the right of survivorship” . DARLA is not on the title. SUE, acting as FRANK’S Agent under a power of attorney had the title to the real estate changed so it was her name with FRANK as “joint tenants with the right of survivorship”. When FRANK dies, who gets his real estate? The answer is SUE gets it. DARLA does not get it. Even though FRANK thought his two daughters would share equally in all his assets, the title to his real estate frustrated his objectives and derailed what would have otherwise been a good distribution plan. DARLA was disinherited, as to the real estate, by mistake.
Second, it must be determined what the real estate’s value may be (now and in the future), what it cost, and whether there will be unnecessary administrative burden if it is kept in one person’s individual name.
The value of real estate is important for determining who, within a couple, should own the real estate. Depending on the size of a person or couple’s estate, proper balancing of assets in the respective estates is important. Transfers can be made between spouses (or their trusts) with no adverse tax consequences with deeds. However, these transfers should be handled with care and performed under the supervision of counsel. Certain steps need to be taken to insure homestead exemption is not lost and special assessments are not lost. Additional communication may be necessary with lenders and insurance companies.
The cost of real estate is important for determining how best to utilize the current law which steps up basis of assets to date of death value. If Mom and Dad paid $200,000 for a house and it was worth $500,000 when survivor died, then the kids get the house with an income tax basis of $500,000. This translates into little or no capital gains tax being due when the kids sell the house.
Basically, if one owns real estate in more than one state, we almost always suggest creating a revocable trust that will own that real estate. The purpose is to obviate any need for probate and unnecessary cost and delay in that other state.
There are many more considerations to address in every estate plan. Each case is unique: unique family, unique objectives and concerns, and unique assets. There are similar important issues that exist with other types of assets such as retirement plans. Actually, the income and estate tax issues that surround retirement plans are very important and will be the subject of the next column.
Mark F. Winn, Attorney