The surviving spouse also receives a stepped-up basis on his or her 50% community property interest. The beneficiary of the property interest receives a stepped-up basis on that portion of the property. The amount includable in the estate of a decedent is based on his or her 50% of community property ownership. (Alaska adopted a community property system in 1998, but it is optional). There is no law requiring one person to leave his or her half to the surviving spouse, although, of course, many do.Ĭurrently, nine states have community property laws: Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington, and Wisconsin. The essential principle of community property is that the earnings of either husband or wife and the revenue from their community property belong not to the producer but to the community of the husband and wife.įor estate conservation purposes, there are no restrictions on how each spouse can give away his or her half of the community property. Under community property statutes, all property earned or acquired by either spouse while they are married is owned in equal shares by each spouse. Unlike other forms of joint ownership, however, these interests can be owned in different percentages.Ī tenant in common can utilize the traditional transfer documents, but interest cannot be passed by operation of law. Tenancy in common provides an undivided interest in property between two or more people. Tenancy by the entirety is only recognized in certain states. Unlike joint tenancy, an interest cannot be transferred without the consent of the spouse. If any nonspouses participate in joint ownership, the entire value of the property is includable in the decedent's estate, reduced to the extent that the estate can prove that the surviving tenant(s) contributed to the cost of the property.Īnother form of joint ownership - tenancy by the entirety - is similar to joint tenancy, but it can only be created between husband and wife. Because of this, the surviving spouse obtains a stepped-up basis only on the first decedent’s half of the property. Under qualified joint tenancy, half of the property is included in the first decedent’s estate. Further, property held in joint tenancy will not be subject to probate. Ownership of a joint interest passes by “operation of law” to the surviving joint owner(s). Anyone can share joint interests, but there are tax benefits when this arrangement is shared only between husband and wife (qualified joint tenancy).Ī joint property interest cannot be passed through traditional documents, such as a trust or a will. Joint tenancy exists when two or more persons share equal, undivided interests in property. This, in essence, brings the basis up to the fair market value at death, thereby eliminating a capital gain if the property is sold immediately after death. Because of this, the beneficiary receives a full step-up in basis. The complete interest is included in the estate of the decedent. Ownership is passed by the typical transfer documents, or by the laws of intestate succession. Sole ownership occurs when someone owns a complete interest in property. Let’s take a look at the general classifications of ownership. Likewise, significant tax benefits can be gained (or lost) depending on the characterization of your property. As a matter of fact, the manner in which you hold title to your assets may supersede provisions contained in other transfer documents. In planning your estate, it is customary to consider wills and trusts (as well as intestacy) as a means of property distribution. What Is the Best Form of Property Ownership for Me?
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