Inherited house and step up in basis

[hntrust]

Thanks, can you point me to the references that you found?

[hntrust]

I guess my son-in-law is okay then since there are no other heirs, he is an only child.

[Opus 17]

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@hntrust wrote:

Thanks, can you point me to the references that you found?

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I'm going to pass on that because, as I said, I'm unsure myself, and I don't want to post links that I can't 100% vouch for.  However, @tagteam is extremely knowledgeable in this area and if they agree that the recipient of an JTWROS by gift (with no personal investment) and who is not spouse, qualifies for a fully stepped up basis, that's convincing to me.  And you have section 2040.  But I will also reiterate that it is time to see an estate planning attorney.  An estate plan should be reviewed every few years anyway, because tax laws, medical conditions and financial conditions change.  (And you should have a similar discussion with your daughter, any other children you may have, your spouse if married, and your own attorney.  It's really important.  You might not think it is, but all of a sudden, it matters.)

Two or three anonymous people on the internet, no matter how much they seem to know, are no substitute for professional counsel. 

[Opus 17]

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@hntrust wrote:

I guess my son-in-law is okay then since there are no other heirs, he is an only child.

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Your son-in-law is ok in the sense that there won't be any siblings squabbling for a share.  But there may be other ways the situation can be optimized.

Look, I'm nagging.  But my parents were in great shape, until my Mom was diagnosed with Alzheimer's.  Fortunately, it progressed slowly enough that there was time to do the estate plan while she was still competent.  But it could have been a stroke that left her bedridden for years of expensive care with no plan.  You and your son-in-law's parent need estate plans, advance medical directives, and all the other stuff that's really hard to face until it's too late.  I nag from honest care and personal experience.

Best wishes. 

[hntrust]

Yes, I know where you are coming from since I am trustee for several trusts my parents set up 30 years ago for my brother who cannot manage money. We got our estate planning documents in place last year. My son-in-law's mother however is the type of person who thinks these things will never apply to her. I don't want to stick my nose where it doesn't belong but since he has asked me for guidance, I am trying to convey information to him so that he can discuss it with his mother. The fact that she titled her home as JTWROS just didn't seem right to me since it would have been a lot easier if she had set up a revocable living trust and titled the house in the trust. I'm guessing she didn't want a trust because it would cost a lot more to have an attorney draft one, rather than have him draft a deed.

[tagteam]

This is nothing more than my opinion but, with respect to federal tax research, Google is not your friend. Far too much of the information on various consumer-level web sites is erroneous, misleading, or incomplete. As a result, I would steer clear of those sites (Nolo, Nerdwallet, Investopedia, to name a few) and stick with the Code, Regs, RRs, RPs, advice memos, et al. Frankly, I hesitate to rely on IRS instructions and publications since they have been wrong in the past and they're not authoritative (I only cite them as a guide).

Regardless, if the son is the only potential heir, the whole issue here is less problematic. I would still, as did @Opus 17, suggest an in-person consultation with local tax or legal counsel who would have access to the deed and any other related and relevant documents.

[hntrust]

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.