Q: My husband passed away recently, and we had a will. At his death, all of his possessions went to me and when I die, all of my possessions will be left equally to my two children. But I have two questions.
First, can I sell my home even though his name is still on the title to the home? If I do sell, do I need a death certificate to prove that he is dead?
Also, upon my death, will my children have to pay taxes on their inheritance? I’ve been told by an acquaintance that the estate has to be over a certain amount before taxes kick in and I should set up a trust for my children’s protection.
Is this right?
A: First, please accept my condolences on the loss of your beloved husband. At a time like this, it’s easy to be confused by the myriad of decisions you have to now make alone.
As the sole owner of the property, you can sell it whenever you want. You should plan to make lots of copies of the death certificate, as you will need it to do things like sell your property or close accounts that have your husband’s name on them.
As for paying estate taxes, your acquaintance is right. In 2004 and 2005, your estate must exceed $1.5 million before federal estate taxes kick in. (Be aware that each state may have an estate tax that could kick in at a different level, or be high enough to be painful.) The estate includes your house, insurance proceeds, any other real property you own, your retirement and bank accounts, and any other assets you have.
If your estate exceeds this amount, you might want to consult with an estate attorney and an accountant, who can help you think about different options that might reduce future taxes you might owe.
Q: My mother in-law has a house in Los Angeles that is fully paid for. She rents it out to another family. My wife and I have been renting our home in Los Angeles and we are amazed and concerned about how expensive it’s getting to purchase a house here.
My mother in-law wants to transfer her house to our name and we would pay her the rental fee she currently gets from the other family.
But, I don’t know where to even begin on this matter, who to approach or what costs there would be to us.
A: What a nice mother-in-law. But you don’t really want her to give you the house, because that would likely trigger a huge gift tax and count against the amount she is allowed to pass down tax-free when she dies.
However, it sounds like the transaction could work as a purchase. You purchase the house from her and she acts as the bank and finances 100 percent of the purchase. You would then pay her as if she were your mortgage lender (which she would be). When she dies, if the house isn’t already paid off, she can forgive what is left of the loan, or, if you must repay it to the estate, you can find another lender.
Another benefit is that because you’re paying interest on a loan instead of rent, that portion of your monthly payment may be deductible if you itemize on your federal income tax return.
I suggest that you, your spouse, and your mother-in-law spend some time with a real estate attorney or estate attorney who can help you put together the documentation you need to purchase this property, which in California includes several state-mandated disclosure forms.
The goals of the transaction should be to have title transferred into your name, to put the same (or more) cash in your mother-in-law’s pocket each month (which would be structured as the mortgage payment, so you could write off the interest if you’re eligible to do so), and to avoid triggering the gift tax.
Q. Recently we sold our family home in Sonoma County, California. Itemized on our “Final Settlement Statement” from the title company were seller charges of $899.80 for “County Documentary Transfer Tax to First American Title Company.” What do such significant charges to the seller represent?
A: You should ask the lender or title company, but nearly every county, state and local municipality raises money via “transfer taxes.” These are stamps that sellers a required to purchase that must be affixed to the deed in order for the transaction to close.
These transfer taxes are based on the sales price of your home, and there are various ways for a county to calculate the tax. Some charge $5 per $1,000 of sales price, others charge as little as 25 cents per $1,000 of sales price. Other counties or states charge a fixed fee.
The transfer taxes are public record, and you could certainly check out whether you were charged correctly or not. You could also call the title company and ask them to explain the charge. Finally, take a look at your truth-in-lending statement. The charges should have been detailed there as well.
Jan. 19, 2009.
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