Publications

TITLE TO REAL ESTATE

How real property is owned can make an enormous difference in how it can be used to accomplish estate planning goals.

Joint Tenancy.
Many married couples own their primary residence in joint and Survivor form. This means that in the event of the death of one of the owners, the other owner immediately becomes the sole owner of the entire property. This may be exactly what the couple intended. However, it also means that the estate of the first to die can not use the value of the property to fund a credit shelter trust.

Use of a credit shelter trust (also known as a bypass trust or a unified credit trust) allows a married couple to maximize the use of each spouse’s federal estate and gift tax applicable exclusion amount. As of 1999, the applicable exclusion amount will shelter $650,000 of assets from gift and estate tax. This amount will gradually increase to $1,000,000 for years after 2005.

For some couples, it would be better to own their residence as joint tenants in common. Joint tenants in common means that each person owns an undivided one-half interest in the property. In the event of the death of one owner, his or her estate will own a one-half interest in the residence, and it will be available to fund the credit shelter trust for the benefit of the surviving spouse and children.

Life Estates.
The holder of a life estate has use of the property for life, but does not have the power to transfer the property to anyone else, either during life or at death. Instead, the original owner of the property (i.e., the one who granted the life estate) has the power to designate who will be the ultimate recipient of the property. This option may be particularly useful in second marriage situations, where the owner may want to ensure that a surviving spouse can stay in the family home for as long as he or she wants to, but may also want to ensure that the property passes to specific beneficiaries thereafter. There may also be circumstances where transferring a home to one’s children while retaining a life estate may be appropriate, particularly when a parent is elderly, but caution should be used and the gift tax consequences of the transfer considered. In certain circumstances, a donor may transfer a residence (or farmland or open space) to a charity, retaining life use of the property. If structured correctly, the donor can claim an immediate Federal income tax charitable deduction for the value of the remainder interest in the property that will pass to the charity at the donor’s death.