Transfer of assets to relative in community property state

[Deleted]

I've seen some posters talk about transferring title to various assets including real property to relatives living in community property states.  As a broad rule, inheritances aren't essentially subject to community property status (lots of ifs, ands & buts there) but wouldn't an asset re-titled to an individual while the original owner is alive become community property with all that entails?  

[The Walk of the Penguin Mich]

It could be.

When my sister was getting divorced, because my dad had transferred the title into our names before he died, my ex BIL tried to deem it community property (even though stepmom was still living in the house) in the divorce.

My sister’s lawyer made noises about his parent’s home (done similarly) and he backed off. 

[haapai]

Huh?  The boilerplate that I learned is that gifts and inheritances belong to the person that they were given to and their spouse has no claim to them unless they are co-mingled.  So why would it matter if the person giving someone else the real estate were alive or dead?  If they are alive, it's a gift.  If they are dead, it's an inheritance.  I've been led to believe that the same rules apply. 

OTOH, I'm pretty weak on what co-mingling is and how to avoid it.  Several of the concepts involved fry my logical circuits but are still part of the law. 

[Deleted]

Jan 13, 2023 13:35:57 GMT -5 haapai said:

Huh?  The boilerplate that I learned is that gifts and inheritances belong to the person that they were given to and their spouse has no claim to them unless they are co-mingled.  So why would it matter if the person giving someone else the real estate were alive or dead?  If they are alive, it's a gift.  If they are dead, it's an inheritance.  I've been led to believe that the same rules apply. 

OTOH, I'm pretty weak on what co-mingling is and how to avoid it.  Several of the concepts involved fry my logical circuits but are still part of the law. 

You may be quite right on this.  Co-mingling is the real catch.  If I receive a gift or inheritance, let's say a house, and DH can show that jointly held community property funds were used for maintenance, taxation, etc. he has a claim of ownership.  Ditto if I get an insurance settlement from a wreck and put it in our joint account.  I have several friends who have to go to great lengths to maintain separate accounts and assets, mostly to avoid warfare between offspring from previous marriages, none of whom want to risk the spouse's kids getting a piece of the pie financially.  

I've seen people here talk of placing their property in a relative's name to simplify estate management or enable qualification for Medicaid.  I just wondered how that would work in case of the relative getting a divorce.  I can see a situation where the spouse lays claim in some way.  

[TheOtherMe]

Depending on how it's done, gifting your house in anticipation of your death is most likely not a good thing to do.

When the benefactor sells the house, their basis is your basis on the date of the gift.  That gives it a much lower basis than if inherited, which would be the value of the house.  They are much more likely to have a taxable gain on the house if it is gifted to them.

[The Walk of the Penguin Mich]

Jan 13, 2023 13:35:57 GMT -5 haapai said:

Huh?  The boilerplate that I learned is that gifts and inheritances belong to the person that they were given to and their spouse has no claim to them unless they are co-mingled.  So why would it matter if the person giving someone else the real estate were alive or dead?  If they are alive, it's a gift.  If they are dead, it's an inheritance.  I've been led to believe that the same rules apply. 

OTOH, I'm pretty weak on what co-mingling is and how to avoid it.  Several of the concepts involved fry my logical circuits but are still part of the law. 

Just because the inheritance is in advance of the death, it does not mean that in a contentious divorce the STBX won’t try.  Most likely will lose, all it did was jack up the costs for my sister’s lawyer.  Apparently her ex’s lawyer thought it was worth it.

Another thing to consider is that the way the IRS views the property.  Had 1/4 of my dad’s house been deeded to me in his will on his death, I would not have had to pay taxes on it.  I got to pay both NY state taxes and fed taxes on the sale of the house because it was deeded to me before his death.

[Deleted]

Jan 13, 2023 15:29:17 GMT -5 TheOtherMe said:

Depending on how it's done, gifting your house in anticipation of your death is most likely not a good thing to do.

When the benefactor sells the house, their basis is your basis on the date of the gift.  That gives it a much lower basis than if inherited, which would be the value of the house.  They are much more likely to have a taxable gain on the house if it is gifted to them.

Absolutely correct!  Losing that step-up in basis can really bite 

[Deleted]

Jan 13, 2023 15:33:52 GMT -5 The Walk of the Penguin Mich said:

Jan 13, 2023 13:35:57 GMT -5 haapai said:

Huh?  The boilerplate that I learned is that gifts and inheritances belong to the person that they were given to and their spouse has no claim to them unless they are co-mingled.  So why would it matter if the person giving someone else the real estate were alive or dead?  If they are alive, it's a gift.  If they are dead, it's an inheritance.  I've been led to believe that the same rules apply. 

OTOH, I'm pretty weak on what co-mingling is and how to avoid it.  Several of the concepts involved fry my logical circuits but are still part of the law. 

Just because the inheritance is in advance of the death, it does not mean that in a contentious divorce the STBX won’t try.  Most likely will lose, all it did was jack up the costs for my sister’s lawyer.  Apparently her ex’s lawyer thought it was worth it.

Another thing to consider is that the way the IRS views the property.  Had 1/4 of my dad’s house been deeded to me in his will on his death, I would not have had to pay taxes on it.  I got to pay both NY state taxes and fed taxes on the sale of the house because it was deeded to me before his death.

Yes, the difference in taxes can be substantial.   And there's always the potential for clawback if the asset is given to reduce assets for Medicaid eligibility

[Bonny]

Jan 13, 2023 14:27:10 GMT -5 soupandstew said:

Jan 13, 2023 13:35:57 GMT -5 haapai said:

Huh?  The boilerplate that I learned is that gifts and inheritances belong to the person that they were given to and their spouse has no claim to them unless they are co-mingled.  So why would it matter if the person giving someone else the real estate were alive or dead?  If they are alive, it's a gift.  If they are dead, it's an inheritance.  I've been led to believe that the same rules apply. 

OTOH, I'm pretty weak on what co-mingling is and how to avoid it.  Several of the concepts involved fry my logical circuits but are still part of the law. 

You may be quite right on this.  Co-mingling is the real catch.  If I receive a gift or inheritance, let's say a house, and DH can show that jointly held community property funds were used for maintenance, taxation, etc. he has a claim of ownership.  Ditto if I get an insurance settlement from a wreck and put it in our joint account.  I have several friends who have to go to great lengths to maintain separate accounts and assets, mostly to avoid warfare between offspring from previous marriages, none of whom want to risk the spouse's kids getting a piece of the pie financially.  

I've seen people here talk of placing their property in a relative's name to simplify estate management or enable qualification for Medicaid.  I just wondered how that would work in case of the relative getting a divorce.  I can see a situation where the spouse lays claim in some way.  

You can't keep some people (including lawyers) from trying to make a claim and intimidate someone into making a settlement. It doesn't necessarily mean they will be successful.