DEAR BOB: Our daughter, age 27, earned her MBA degree last June and has a wonderful high-paying job. Frankly, she earns more than I do. Her mother and I are very proud of her. However, she has virtually zero savings for a down payment on a nice new condo she wants to buy. The mortgage company approved her for a nothing-down mortgage. But the “catch” is dear old mom and dad have to co-sign on the loan. We are willing to do that. However, the lender says we also must take title to the condo with our daughter. We would prefer not to do so for various reasons. Is there any way to get out of being co-owners of the condo if we co-sign on the mortgage? – Henry R.
DEAR HENRY: No. For several legal reasons, if the lender has to foreclose due to mortgage default, it prevents possible problems if the co-borrowers on the mortgage are the same names as the co-owners of the property security.
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Depending on state law where the condo is located, in the event of default loss it might be difficult to get a deficiency judgment if your names are not on the title as well as on the mortgage.
Lenders have learned it’s much cleaner and easier to insist the co-borrowers’ names and the co-owners’ names are the same. For full details, please consult a real estate attorney in the state where your daughter’s condo is located.
WHAT IS STEPPED-UP BASIS FOR INHERITED PROPERTY?
DEAR BOB: My mom and dad bought their home in 1969 for $22,000. They divorced in 1978. Mom kept living in the house with me until I was grown and on my own. Dad died in 1984. He named me as his heir to receive title to his half of the house. Mom continued living in the house until she died in early 2004. I have now fixed up the house and decided to sell it. How will I calculate my capital gain? – Edward H.
DEAR EDWARD: It appears you have a different adjusted cost basis for each half of the house. The general rule is an heir receives a new stepped-up basis to market value on the date of the decedent’s death (or alternate date used by the deceased’s estate).
Half of your stepped-up basis would be 50 percent of the home’s market value on the date of your father’s death in 1984. The other half of your stepped-up basis is 50 percent of the market value on the date of your mother’s death in 2004.
Subtract this total from your net or adjusted sales price to determine your capital gain upon sale. For full details, please consult your tax adviser.
NO FEDERAL ESTATE TAX FOR ESTATES BELOW $1.5 MILLION
DEAR BOB: My health isn’t too good. But I don’t want to leave my adult daughter with any tax burden when I pass on. My home has appreciated greatly and is now worth around $650,000. I own about $300,000 in common stocks, plus my car worth around $5,000, furniture worth $5,000, and other minor assets not worth much. Will she owe any tax when I die? – Beth Ann W.
DEAR BETH ANN: If your total net estate is less than $1.5 million, and if you pass on in 2005, no federal estate tax will be owed. Your state might have an inheritance tax that applies to the heir, but most state inheritance taxes exempt close relatives, such as children of the deceased.
However, the most important thing you can do for your daughter is to put title to your major assets, such as your home and those stocks, into a revocable living trust to avoid probate costs and delays. After you pass on, then it will be easy for your daughter to transfer title as successor trustee according to the terms of your living trust.
With a living trust, until you die you retain full control, including the ability to buy, sell, refinance and do anything you wish with your living trust assets. Details are in my special report, “Living Trust Pros and Cons for Avoiding Probate Costs and Delays for Your Heirs,” available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com. Questions for this column are welcome at either address.
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