Discussion:CA Joint Tenancy problems?
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Discussion Forum Index --> Basic Tax Questions --> CA Joint Tenancy problems?
Discussion Forum Index --> Tax Questions --> CA Joint Tenancy problems?
| 31 January 2008 | |
| Married couple owns property as joint tenants. So when a spouse dies, the surviving spouse only gets a step-up in basis on only half the property??? Apparently, the surviving spouse DOES NOT get a step-up in basis on 100% of the property, as I have always thought. I just learned this. Need to make sure my married clients DON'T own their property as joint tenants.
Am I missing something here? Any comments appreciated. | |
| 31 January 2008 | |
| That is true, but in a community property State like California. property held as community property would get a 100% step up to the surviving spouse | |
Towntaxlady (talk|edits) said: | 31 January 2008 |
| I have a similar situation in California. But this couple bought the property 60 years ago with community fund (that's the way it was back then-husbands and wives shared everything!). I don't know how the deed was originally held but the property was put into a Trust in 1990. The trust reads (1) all the property in the trust is community property and it also reads (2)" any property put into the trust retains the same character as it did prior to placing it in the trust, ie., separate property is separate and community property is community." Does the widower get a 50% step up or 100% step up. Inasmuch as the couple bought the property for $100,000 and sold it some 60 years later for 1.3 million, the tax consequences are substantial! Help! | |
| 31 January 2008 | |
| Mike is correct. So a little trick is to have your clients sign property transmutation agreements (after properly advising them about the legal consequences of such property reclassification) reclassifying all their property as community so they will enjoy a full step up regardless of how it's titled. | |
| 31 January 2008 | |
| I agree with Dingodile. A written transmutation agreement can avoid problems with joint tenancies created after 1984. I believe that verbal transmutation agreements are ok on joint tenancies created before 1985.
Also, in California, we have a form of ownership known as Community Property with Right of Survivorship. | |
| 31 January 2008 | |
| Kendrick, assuming the joint tenancy was created after 1984, you will need to find a written transmutation agreement if you are taking the position that the JT property was CP and not SP. | |
| 31 January 2008 | |
| Whether or not joint tenancy property should be changed to community property depends on the financial situation of each spouse. If a creditor is trying to collect debts from one spouse, he can collect from all of the community property so it is better that joint tenancy property stay that way. If this is not a problem, the property can be deeded from H&W as JT to H&W as Community Property with right of survivorship. This allows the benefit of joint tenancy--direct passage of title to the survivor--without going through probate. | |
| 31 January 2008 | |
| A written transmutation agreement. Hmmm. I expect there are no income tax consequences changing from JT to CP. Please comment if there may be.
Thanks everyone for input. | |
Towntaxlady (talk|edits) said: | 1 February 2008 |
| Following up on the California couple whose property was in a revocable trust, happy to report that I found a statement by the attorney in a document allocating the estate into TrustA and Trust B,that all property in the trust was "community property". It appears that the surviving spouse gets the whole 100% stepped up value. Does this also apply to the value of the stock portfolio that was part of the community property (according to the Trust instrument) but was later allocated to Trust B, the By-Pass Trust, which became an irrevocable trust? | |
| 1 February 2008 | |
| Typically assets allocated to a By-Pass Trust would be the separate property of the deceased spouse, and would not pass to the surviving spouse but someone else, who would get the step up | |
Towntaxlady (talk|edits) said: | 1 February 2008 |
| Thanks, Mike -- but I may have mislead you. All property was community property in the one original trust. Upon the death of the wife, the trust splits into 2 trusts: Trust A for the surviving spouse and Trust B, the By-pass trust. The assets in Trust B just sit there until the death of the surviving spouse, at which time they pass to the heirs. However, when the trust splits into 2 trusts, all the community assets are allocated between the two trusts to gain maximum advantage of the marital deduction. The assets allocated to Trust A gets a 100% step up. Normally, the assets in Trust B get a 50% step up so for CP wouldn't it a 100% step up? | |
| 1 February 2008 | |
| Oh, my defintion of a bypass trust would be to avoid marital deduction for some assets and have the assets taxable to the deceased spouse's estate. We might be talking about different. Either way i think there would be a 100% step up for any of the heirs | |
Towntaxlady (talk|edits) said: | 1 February 2008 |
| Thanks, Mike! We just saved this 92 year old terrific man $60,000 in taxes! | |
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