I live in Broward County in Florida and own a duplex (listed in my revocable trust) to be inherited by my son. I am 85 years old. I would like to list it now in both my name and his. What is the legal process to include him as a co-owner from now on, so he can also own it outright after my passing? Is there any tax upon ownership change? Also regarding income and expenses for the duplex, who files on the tax return?
The purpose of a living trust or revocable trust is to provide for an easy method to transfer ownership of a property at the time of the death of the owner. We can’t think of too many reasons why a person of your age would want to change the terms of the living trust.
Let’s review what you have at this time. You own a duplex unit. The actual owner is your trust and you are the trustee and you are the beneficiary of the trust. You control the property, receive the benefits of ownership and for all practical purposes can call the property your own. When you die, the trust names your son as the new beneficiary under the trust.
Without probate, your son will become the owner of the duplex at the time of your death. For practical purposes, if he decides to sell the duplex at that time or up to one year after you die, he won’t have any federal income taxes to pay on the sale. He will effectively inherit the duplex at its value at the time of your death. If your estate only has this duplex and some other property that is well under $5 million or so, your estate won’t have any estate taxes to pay, so that won’t be an issue.
The real question we are wondering is why you’d want to change title now. If you are concerned about your health and want someone to manage the affairs of the duplex in case you are unable to do that, the trust document should provide for a successor trustee should you be unable to serve. Or, you could amend the trust to allow you and your son to be co-trustees and do everything jointly. You could also appoint him as trustee and either you or your son could administer the affairs of the trust. We’d prefer to have him act as trustee for your trust only if you lose the capacity to serve as trustee.
You may have also signed a document giving your son power of attorney for financial matters in case you become disabled or unable to handle your affairs. This too would allow your son to help out in case you are unable to take care of your finances. If this is what you are looking for, this may be enough.
Now, if you are truly looking to transfer ownership of 50 percent of the duplex to him, you will face other issues. One of the issues is that the conveyance may trigger the local tax assessor’s office to reassess the home’s value. If you gift the half interest to your son, he will own the half interest at the same value as if you owned it. If he sells it at the time of your death or shortly after and you would have had a profit, he may face taxes that will need to be paid to the Internal Revenue Service.
The tax benefits that you receive from the duplex may change. You will have one-half of the expenses you had before. If you were deducting taxes and other deductible items, you’ll only have half as much to deduct. We don’t know how it will affect your son’s federal income taxes, but he should end up with some deductions — but it depends if the other half of the duplex is rented or not. If it’s rented, he may receive some tax benefits as well. For all of these tax benefits and other tax issues, you’d want to talk to an accountant or other tax professional to go over those issues.
Ilyce Glink is the creator of an 18-part webinar+ebook series called “The Intentional Investor: How to Be Wildly Successful in Real Estate” as well as the author of many books on real estate. She also hosts the “Real Estate Minute” on her YouTube channel. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact them at ThinkGlink.com.