As a follow-up, we consulted an attorney and confirmed that code section 2040, 1014, and 2036 would also apply in this scenario and that the joint owner would receive a full step up in basis at the death of the non spouse joint owner. No gift tax return needs to be filed because the intent was for estate planning purposes only and not to make a complete gift of 1/2 of the house. He said intent is easy to prove since the mother intends to live in the house for the rest of her life.
