A family friend, 91, wants to add me to the deed of his house. His wife died about 8 years ago. His daughter, who would be my age, 65, died when we were in high school. And, his son is in no condition to get the house, unfortunately. Therefore, the family friend wants to add me to the deed. What is the best way to add my name, so there are no issues upon his death?
Dear Friend,
My heart goes out to your friend.
Not a day must go by when he doesn’t think about his daughter, even and perhaps especially at 91. But he’s fortunate to have good friends. As this column points out from time to time, the best investment you can make in your lifetime is not tech stocks or even property, it’s the people you have around you when it counts. That, and education.
If your friend wants to do you a favor and leave you his home — and what a gesture! — he should not, I repeat not, put you on the deed. He could list you on a transfer-on-death deed or a revocable trust, which becomes irrevocable upon your friend’s death, so the house goes to you upon his passing in accordance with his wishes.
Failing that, you could simply be named as the beneficiary of his home in his will. That option would not — unlike the other aforementioned suggestions — avoid the often lengthy and always public probate process, which is essentially a public accounting and distribution of a person’s assets. Just please avoid being added to the property deed.
If your friend wants to do you a favor and leave you his home — and what a gesture! — he should not, I repeat not, put you on the deed.
If you were added to the deed, you would lose your step-up in basis, a tax break that allows people to leave assets without paying hefty capital-gains tax. If your friend’s house were worth $500,000 when he bought it and $1 million when he passed away, you would only have to pay taxes on the appreciation of your property based on its fair market value at the time of his death.
“An heir does not have to be a biological descendant to receive a step-up in basis,” says S. Michelle Jann, director of wealth planning at Goelzer Wealth Management. “The property in question must be included as a part of the decedent’s estate. Qualifying for the step-up in basis doesn’t have anything to do with the relationship of the individual.”
It seems sad to have to mention another issue: elder financial abuse. Just because an elderly person leaves a substantial sum to a non-family member does not mean that they have done so through coercion or by other malfeasance or skulduggery. However, your friend’s son may see things differently; if your friend writes a will with his intentions clearly stated, it may help deter any subsequent challenges.
I have received many letters about elder financial abuse and, while an advice columnist only hears one side of a story, it’s rare that a person who was acquiring assets through illegal means would write to me for advice on how best to do that. So I wish you and your friend well and assume only good things about both of you. Live long, in good health and prosper.
Your friend’s son may see things differently; if your friend writes a will with his intentions clearly stated, it may help deter any subsequent challenges.
In the meantime, please, advise your friend to exercise caution when it comes to taxes. Laws vary by state, but he should not make any hasty moves without consulting a probate attorney. “When an inherited asset qualifies for a stepped-up basis, inheritors can adjust the cost basis to the current fair market value,” says Fidelity Investments.
“Any capital gain that accrued between the original purchase date and the owner’s date of death is recognized, but not realized for the beneficiary. In other words, it’s included in the value of the asset, but not taxable now or when the asset is eventually sold,” it says. “Any appreciation in the hands of the inheritor is taxable when sold.”
“However, if the executor of a person’s estate files an estate tax return, they may be able to elect to use an alternate valuation date of 6 months after the date of death to value the estate,” Fidelity adds. “This alternate valuation date can be used only if the asset depreciates from the time of the owner’s date of death, and the value as of that time would be used to calculate the adjusted basis.”
Continue to create happy memories to cherish.
You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com. The Moneyist regrets he cannot reply to questions individually.
More columns from Quentin Fottrell:
Check out The Moneyist’s private Facebook group, where members help answer life’s thorniest money issues. Post your questions, or weigh in on the latest Moneyist columns.
By emailing your questions to The Moneyist or posting your dilemmas on The Moneyist Facebook group, you agree to have them published anonymously on MarketWatch.
By submitting your story to Dow Jones & Co., the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.
