Dear Mr. Miller:
So you’re wondering, “Where’s the problem?” A very few months after the marriage I stumbled on some papers that indicated that title had been changed to joint tenancy between them. Dad had promised that house to me when he died.
I had a real estate friend of mine verify if this was true—and it was. He said I should check with a lawyer to discuss the effect of all this. What happens to my inheritance?
Joint Tenancy Avoids Probate: Joint tenancy title, an absolute favorite of so many, is an extremely dangerous form of title for those who don’t know what they are doing. The reason is that it has so many ramifications. Most people like it because it is an easy way for the family to avoid Probate when one dies.
Need for an Attorney: Everything may be on the up and up here. A good heart to heart talk with your Dad is really what you need to do . Did Dad and Wife consult an attorney before taking this action or was it just done by them directly? If the latter, it is unlikely that Dad really thought through all of the below-the-surface ramifications.
Whose Family Will Ultimately Get the House: It may be that Dad does want Wife to inherit the house. But did Dad really want Wife to get it all or just to be allowed to live in it for her remaining life so that you would inherit it after? With the joint tenancy, if she outlives him, when she dies, the house will go to whomever is named in her Will or Trust, presumably her family member and not you.
Debts: And then there is the debts issue? Does Wife have any? Does she have any creditors? This is very important because if she does, that house of your Dad’s can now end up as an asset available to a creditor of the Wife in a lawsuit.
Mortgage Liability: Is there a mortgage on the house? If so, did Wife assume the liability? In the unlikely event that the lender has to foreclose on the house and it does not sell for enough to pay off the debt, will Wife be liable along with your Dad for the remaining amount due–or will it just be your Dad?
Capital Gain Disadvantage: If Wife dies first and Dad wants to sell the house, he could be staring at a significant capital gain tax. The IRS will forgive one-half of the pre-death appreciation, but not the other half. Community property title would take care of both halves. Of course, community property has all sorts of other ramifications, too.
Conclusion: Depending on what your Dad actually wants to accomplish will determine what title or approach is the correct one. And that is probably only going to be determined by a thorough discussion with a competent and experienced estate planning attorney. Maybe a Living Trust would be an appropriate approach, maybe not.