Real Estate Mailbag

If you each want to leave your half of the house to your children, are you aware of the possible consequences? Suppose your tenant in common dies and his will leaves his half of the house to his children. Would you want to own the house with your late boyfriend's children?

If they were minors at the time of his death, that would create an additional problem. Worse, if they were over 18, as co-owner tenants in common with you they could bring a partition lawsuit to force the sale of the house. Consult a lawyer to discuss other options.

DEAR BOB: My wife and I are retired and own a Florida condo as well as a house "up north" where we lived for 36 years. We occupy each residence for about six months a year and consider both to be our primary homes. We are thinking about selling the condo because our children and grandchildren live near our old house. But the condo has greatly appreciated in value. Our profit would be about $400,000. Can we sell it in 2005 and then sell our other home in 2006 or 2007 and use that $500,000 tax break again?

-- George R.

DEAR GEORGE: You can use the $500,000-per-couple principal-residence tax exemption (up to $250,000 for a single person) every 24 months. I presume you and your wife owned and occupied your Florida condo at least 24 of the 60 months before its sale as your "main home."

That means you can sell the Florida condo first, claim up to $500,000 tax-free capital gains, and then sell your other home at least 24 months later for the same tax break if it qualifies as your principal residence. Consult a tax adviser for details.

DEAR BOB: About a year ago, I set up my revocable living trust. My attorney prepared a deed transferring my home into the trust. Somehow, that quit claim deed never got recorded. My attorney has passed away and his office is closed. What should I do? -- Adrian R.

DEAR ADRIAN: No problem. The quit claim deed from yourself to your living trust, whether it was not recorded or was improperly indexed, is known as a "wild document" or a wild quit claim deed. It is out of the chain of title for your home.

Just have a new quit claim deed prepared from yourself to yourself as trustee of your revocable living trust. Then be sure it is properly recorded. That's all it takes to transfer title for your home into your living trust. Consult a lawyer for details.

DEAR BOB: Does stepped-up basis apply to a husband or wife who dies and leaves his or her half of the home to the survivor? Or does it just apply to property inherited from a third party? -- Barbara V.

DEAR BARBARA: This important term applies to any real estate (or other asset) received by reason of death from a deceased property owner. If you receive your late spouse's share of a property, you are entitled to a new stepped-up basis for at least half of that property's market value.

Suppose you and your husband owned your home as joint tenants with right of survivorship. He died. As the surviving joint tenant, you automatically received his joint tenancy interest with a new stepped-up basis of market value on the date of his death. In community property states, a surviving joint tenant spouse may be entitled to receive a new stepped-up basis on the entire property value, not just half. Consult a tax adviser for details.

DEAR BOB: I am getting on in years and want to distribute my assets to my two children fairly. However, I am concerned that I might need medical care, and I don't want to depend on Medicaid or other welfare. Should I deed my real estate to my adult children now to avoid probate? -- Norma T.

DEAR NORMA: You might need to sell your properties to provide for your old age. Why give up control?

A better alternative is to create a revocable living trust and deed your properties and other major assets to the trust. You can then specify who is to receive the assets when you die. Meanwhile, you keep control to buy, sell or refinance.

Readers with questions should write Robert J. Bruss at 251 Park Rd., Burlingame, Calif. 94010, or contact him via his Web page,http://www.bobbruss.com.

© 2005, Inman News Service