Titling and Basics Flashcards
community property system
property acquired during marriage belongs equally to both spouses (the community)
each spouse has an undivided, one-half interest in all property belonging to the community
both spouses must consent to a conveyance, sale, or gift of community property to any third party during their lifetime
at death, each spouse may then generally dispose only of his or her one-half interest, usually by will. No Survivorship rights.
9 States
Community Property separate property Interest
separate property:
property one a spouse acquires during marriage by:
gift
inheritance
property acquired before marriage
Income earned prior to Marriage
Interest earned on separate assets held by one spouse as sole owner
Community Property Interest
Income earned by one spouse or both during marriage
Appreciation on solely owned property that is attributable to non owner spouse
Separate assets that have been comingled where it can no longer be determined which are separate
Includes insurance
Community property step-up
at the death of the first community property spouse, both halves receive a stepped-up basis (NOT ORDINARY INCOME PROPERTY)
1/2 included in gross estate
**not the case in common law states where only the decedent spouses half of the total interest held as joint tenants with ROS steps up
Sole ownership
absolute or fee simple ownership
outright ownership or separately owned property
no survivor rights - property passes through probate when the owner dies
Joint Tenancy with Rights of Survivorship
co-ownership by two or more people
undivided, equal interest in the entire property
property passes to the surviving owner by right of survivorship NO PROBATE
no need for a will to pass on the property transfer taxes
Non Spouse Joint Tenants
no gift tax consequences if each person contributed the same amount to the acquisition price
if owners contributed an unequal amount to the acquisition price, the owner contributing more of the purchase price makes a gift to the other owner equal to the amount contributed in excess of an equal contribution =consideration furnished rule
Includable in gross estate unless contribution can be shown before Jt tenancy was established
If consideration is given by gift and JT property is purchased. purchase by gift is included. Interest on gift is not a gift.
Tenants by the Entirety
TE - limited form of joint tenancy with right of survivorship that can only exist between SPOUSES
only in some common law states
neither spouse may sever the survivorship right of the other without mutual consent, death or divorce decree
only 1/2 of the value of the property is included in the gross estate of each spouse - same basis issues as JTWROS
features credit protection from the claims of each spouses separate creditors (but not joint creditors) - NOT available with JTWROS
NOT subject to Probate
Tenants in Common
TC = ownership of property by two or more people
each has an undivided but possibly unequal (fractional) interest in the entire property.
SUBJECT TO PROBATE
Ex: 2 people own land with 40 and 60% fractional interests -each person can sell, donate, will, or pass through intestate succession their interest
when one tenant in common dies,
the remaining tenants do not automatically get the decedent’s interest
**when a tenant in common dies, their percent interest is included in their estate
right of partition - each tenant has the right to demand that the property be divided on the basis of ownership interest or that the property be sold and divided
common way to inherit property
Groups of assets subject to probate
- individually owned assets of the decedent (for which no bene designation has been made)
- property held concurrently with another where no survivorship rights are present
- decedent’s one-half interest in community property
- assets that pass to the decedent’s estate at death (i.e. life insurance)
Advantages of probate
- provides clean titling of assets from decedents to heirs
- provides for an orderly administration of decedent’s assets (inventory of assets and valuation)
- implements the objectives of the decedent when there is a valid will
- protects the decedent against an untimely filing of claims by the decedent’s lifetime creditors
- protects creditors by giving them a forum to have their claims heard
- oversee distribution
Disadvantages of probate
- cost and complexity
- potential delay in distributing of assets to heirs
- public nature of the process
Three types of transfers that avoid probate
- transfers by operation of law
- transfers by trust
- transfers by contract using beneficiary designations
Ancillary probate
Separate probate proceeding for real estate in a state other than the decedent’s state of residence
Transfer by operation of law
most common is to title the property at joint tenancy with right of survivorship (JTWROS) or as tenancy by the entirety (TE)
in most common law sates, you just have to document death of one spouse to retitle under the surviving spouse
most states have adopted the Uniform Simultaneous Death Act - applies when both tenants die within 120 hours of the others. If this occurs, each half is subject to probate. Assets bypass first spouse and go to other benes.
