Real estate acquired as gift owned as separate property
Q: My brother and I own some property that belonged to our parents. I want to give my half to my son now, and my brother is going to give his half to my son upon his death. Should I wait and give my half upon my death also? And if I give my half to my son now, and he and his wife divorce will the property be his or will it be considered community property?
A: If you give your half of the property to your son now, your cost basis will carry over to your son. That could be a disadvantage for him if the property has appreciated since you inherited it. If you give it to him at your death, he will have a new cost basis equal to the fair market value of the interest upon your death.
Of course, cost basis is a concern only if the property is being depreciated for tax purposes, or if your son is planning to sell the property during his lifetime. Real estate that is acquired by gift or inheritance is owned as separate property. Therefore, it will remain as your son's separate property unless he gives his wife a portion of the property or signs an agreement converting it to community property.
Q: I have three adult sons, each of whom has children. My will leaves my property to my sons, per stirpes. I also have my sons as payable-ondeath beneficiaries on every financial account in my name,
including my retirement accounts. There is no question that if one of them should predecease me, the two surviving sons would share the accounts with the children of their deceased brother. Can they do that, by distributing the accounts in the same manner that my will would have done it? My estate is $250,000 total.
A: Yes, they would be free to share the money they receive as beneficiaries with their nephews and nieces.
There is a possibility they might be required to file gift tax returns, but there is virtually no chance they will owe any gift taxes.
You should not be so certain that the two surviving sons will share their inheritance, as that is not typically what happens. People tend to keep the money and are not so willing to split it up with anyone else. Granted, your sons might be the exceptions to the rule.
If you want to be sure that the disposition of the accounts will be handled by your will, then you should change all of the accounts to individual accounts styled in your name alone. That way, they would all pass through probate according to the terms of your will.
The information in this column is intended to provide a general understanding of the law, not legal advice. Readers with legal problems, including those whose questions are addressed here, should consult attorneys for advice on their particular circumstances. Ronald Lipman of the Houston law firm Lipman & Associates is board-certified in estate planning and probate law by the Texas Board of Legal Specialization. Email questions to stateyourcase@lipmanpc.com.