Prenup's real estate impact questioned

DEAR BENNY: When my dad and stepmother got married they moved to Florida and bought a home together. Because there are children on both sides, they had a prenuptial agreement drawn up that states the home would be divided equally between the children when they both were gone. Sadly, my dad passed away recently, and we were just told that Florida law states that the deed to the house automatically goes into the surviving spouse's name. We were told that my stepmother owns the house now and we are out of luck.

She and her family do not intend to honor the prenuptial agreement and, according to the lawyer handling the estate, we have no recourse. My question is would the prenuptial agreement take over when my stepmother passes? What happens if she sells the house, buys another and puts the new house in her family's name? --Mike

DEAR MIKE: I don't know Florida law, and suggest you talk with another attorney to get a second opinion. I am assuming that your dad and stepmother took title to the property either as tenants by the entirety -- which is reserved for married couples -- or as joint tenants with rights of survivorship . In either case, on your dad's death, the house automatically (by operation of law) vested title to the survivor.

That's the general law in most states, not only in Florida. However, I am concerned that the stepmother may be trying to avoid the obligations of the prenuptial agreement. That's a contract that should be binding on her, and perhaps your second attorney will be able to give you a better opinion.

To answer your question, however, have you read the prenuptial agreement? It may have provided that on your dad's death, she could live in the house for her lifetime, after which the property would be divided up between the two families.

If that's not the case, then she owns the property and the prenup may be meaningless. Your lawyer should be able to provide you with the law in your state.

DEAR BENNY: Please explain the process of an appraiser for estate property. Also, I need to know the effect the appraisal has on income tax or estate tax. I have been unable to find anything in detail on this subject except the fact that you need to get appraisals. --Joe

DEAR JOE: State probate laws vary, but generally real property needs to be appraised as of the date of death for probate purposes. In the District of Columbia, where I practice law, it is sufficient to use the government's real estate tax-assessed value to report the property value in the petition for probate.

For federal estate tax purposes, an appraisal is required to be filed with the estate tax return. For date of death in 2009, a federal estate tax return is required only if the gross estate is greater that $3.5 million. Last year the threshold for filing a return was $2 million. If a return is required (or if the IRS could argue that it was required), an appraisal as of the date of death should be prepared. An "alternate valuation date" using the date that is six months after the date of death can be used if the appraised value on that date is lower than the date-of-death value.

Federal income tax is imposed on the gain on the sale of the decedent's property. The gain is determined by taking the difference between the date-of-death value (or alternate valuation date, if that date is used) and the sales price of the property. The taxpayer cannot use one valuation for estate tax and another for income tax purposes, so it is important to consider both estate and income tax consequences when choosing the valuation date.

State estate tax and income tax would also need to be considered, but the laws vary state to state as to what, if any, amount is exempt from tax. In the District of Columbia, for example, the decedent's assets up to $1 million are exempt from estate tax. The federal valuation and alternate valuation rules are followed.

I hope this general statement is helpful, but you really should consult your own tax and financial advisors regarding the law in the state where the decedent died. ...CONTINUED

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