DEAR BENNY: I resided with a 71-year-old male who died in November with no will. I took care of him since 2002 and lived with him since 2005 because his health was diminishing. His family had basically abandoned him, never visiting or making any type of contact with him. I want to know if there is any way I can keep the house as my residence. We discussed his getting a will, but he died before he could get a lawyer. He was going to leave the house to me. –Carl
DEAR CARL: You have a difficult situation. I have often joked that "when there is a will, there are relatives." And in your case, because there is no will, I suspect that his family will suddenly claim to be his best friend and will want to take possession and title to the house.
When a person dies without a last will and testament, this is called "intestacy." In simple terms, if you do not have a will, the laws in the state where the person died (or in some states where the property is located) will dictate who will get the property.
You have a heavy burden to prove that your friend wanted to give you the house on his death. I am concerned that you will not be able to show sufficient evidence should the relatives want to claim ownership by virtue of the laws of intestacy in your state.
I suggest you (or perhaps your attorney) talk with the family to see if anything can be worked out. Perhaps you can buy the house for a nominal amount, or perhaps the heirs will give you some money — just so that you go away and don’t file a lawsuit claiming ownership.
I wish I could give you better advice, but there is a moral to this story: If you own real estate, make sure that you have a valid, enforceable and current last will and testament. It may cost you some money for legal fees to have this accomplished, but it will save your heirs (or whomever you want to have the house on your death) a lot of aggravation and money in the long run.
DEAR BENNY: Your recent column featured a question from someone who wanted to give a house worth $459,900 to his aunt but didn’t want to pay gift taxes on it. My understanding is that you don’t have to pay gift taxes until the total amount you give exceeds $1 million. Thus, this person shouldn’t have to pay any tax on that gift but will have to fill out some forms. –Dawn
DEAR DAWN: You are correct. If you gift $13,000 or less per year, there is no tax consequence to anyone. If the gift is over that amount to any one person, that amount is deducted from the giftor’s lifetime gift tax applicable credit amount. And you are also correct that this amount remains at $1 million.
But, when dealing with real estate, my concern is that the tax basis of the donor (the person giving the gift) becomes the tax basis of the donee. In other words, if I bought my house years ago for $25,000, and gift it to my nephew, even if the property is now worth $1 million, my nephew’s basis is mine. So in my example, assuming I made no improvements to the property (which would have increased my tax basis), if my nephew sells the house for $1 million, he would owe the IRS $146,250 in capital gains tax. ($1 million minus $25,000 x 15 percent). He would also owe any local or state taxes.
DEAR BENNY: I’m a clinical psychologist and have run into this nightmare scenario several times:
1) The 18-year-old is not as frugal as her parents and runs up debt or gets in trouble with the IRS. Their house is one of her assets.
2) She marries and then divorces at some time in the future. Her share of the house is one of the assets she brings into the marriage.
3) She has a falling out with her parents and wants to have her share now; she can file for partition, forcing them to either buy her out or sell their house.
4) They may want to sell the house a few years from now. They will need her signature. She may not think the sale is "good for them." She may not like her widowed mother’s new boyfriend, or doesn’t want them to sell and move to Florida, or she wants to live in the house, etc. She will have tax consequences she won’t like.
Parents never expect any of these things to happen, but, unfortunately, they do. Times and situations change in ways that people never expect. –Name withheld for privacy purposes
DEAR ANONYMOUS: I found your e-mail both informative and interesting and decided to use it in full. I have long taken the position that — for legal and tax reasons — it is not a good idea for parents to put their children on title to the family home. Your analysis provides a different dimension in support of my opinion.
DEAR BENNY: I am in the process of preparing my 2010 income tax return and bought my first home last year. How is the first-time homebuyer tax credit reflected on the tax return? –Tim
DEAR TIM: To be eligible for the first-time homebuyer tax credit, you had to enter into a binding real estate sales contract on or before April 30, 2010, and must have closed (gone to settlement or escrow) on or before Sept. 30, 2010.
Although the IRS is encouraging taxpayers to file their tax returns electronically, because of the documentation required for claiming this credit, you must file a paper return. Attach Form 5405, entitled "First-Time Homebuyer Credit and Repayment of Credit." You must also enclose a properly signed settlement statement (known as the HUD-1) that was used for the purchase.
There has been a lot of fraud involving tax filers on this issue; indeed, one taxpayer claimed that his under-aged son was the property buyer. Accordingly, the IRS is looking very carefully at all tax returns that claim this credit, which is why they are insisting on a paper — not an electronic — filing.
You can get a lot of helpful information from the IRS website (www.irs.gov).
One important suggestion for military people: In December 2010, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 became law. If you are a member of any of the uniformed armed services — or in the Foreign Service — and served on official extended duty service outside of the United States for at least 90 days during the period beginning after Dec. 31, 2008 and ending before May 1, 2010, you have an extra year in which to buy a principal residence and take advantage of the first-time homebuyer credit. You have to enter into a binding real estate sales contract on or before April 30, 2011, and close (settle or go to escrow) by June 30, 2011.
DEAR BENNY: I enjoy reading your column, but I must disagree with your pet peeve regarding condominiums vs. HOAs. I have now read two different answers where you accuse the letter writer of referring to his or her condo as an HOA. Neither writer did any such thing — they both were writing to ask you about actions taken by the governing board of the condo, which is commonly referred to as an HOA. Perhaps there is a distinction to be drawn between the two in Washington, D.C., and Maryland, but in California, for example, the governing board of a condominium is called the HOA.
Similarly, bylaws and CC&Rs are used interchangeably when describing the rules governing the building — it really depends on what attorney draws up the papers.
I could understand if your pet peeve was describing a TIC or co-op as a condo, but there really is no confusing the issue when someone writes in to ask about the governance of their building. –Bill
DEAR BILL: You are not the only Californian who wrote me about my "pet peeve." Others — including an acquaintance who apparently was on a community association board in your state — have the same objections.
I checked with reputable and experienced lawyers around the country (including Arizona and Washington state) and they have all confirmed my opinion that there is a legal distinction between a condo and a homeowners association.
However, a California lawyer did say that although he agrees with my legal position, in your state the terms are used interchangeably.
So in the future, I will continue to raise my pet peeve, but with a California caveat. As always, I appreciate hearing from readers on any subject, pro or con.