Estate Planning for Financial Planners Chapter 3: Types of Property Interests

Types of Property Real Property – land and buildings. Tangible Property – property that can be touched and is not realty Intangible Property – property that can not be truly touched (stocks, bonds, patents, and copyrights).

Fee Simple/Sole Ownership Complete ownership by one person. Right to use, sell, gift, alienate, convey, or bequeath. Transfers via probate by will or intestacy law. Included in owners gross taxable estate. Included in owners probate estate.

Tenancy in Common (1 of 2) An interest held by two or more related or unrelated people. Each holds an undivided interest in the whole. Do not necessarily own equal interests. Each generally shares in income and expenses. Transfers via probate.

Tenancy in Common (2 of 2) If the owners disagree, they have the right to partition or sever the property. After they sever each owner owns his share fee simple. If ownership is not in proportion to contribution, a gift may have occurred. All consideration to purchase comes from one owner, for example. FMV of ownership interest is included in the gross estate. Prove ownership interest

Joint Tenancy (JTWROS) (1 of 3) Interest in property held by two or more related or unrelated parties. Each owns an undivided interest in the whole. Percentage ownership must be equal. Three owners: one-third Each generally shares in income and expenses. Right to sever property Implied right of survivorship. Passes outside of probate

Joint Tenancy (JTWROS) (3 of 3) Possible gift Exception to the gift rules Bank accounts and Series H Bonds No gift until funds withdrawn from account Included in gross estate according to actual contribution rule. Spouses – Deemed 50% contribution rule Who else would own property JTWROS?

Tenancy by the Entirety Similar to JTWROS except occurs only between married people. Neither can sever without consent of the other. Right of survivorship implied. Transfers outside of probate. Deemed 50% contribution rule.

Community Property (1 of 3) Nine States Arizona California Idaho Louisiana Nevada New Mexico Texas Washington Wisconsin

Community Property (2 of 3) Earnings during the marriage. Separate Property Property acquired before the marriage. Property acquired by gift or inheritance during marriage. Income from Separate Property California rule: separate property Texas rule: community property

Community Property (3 of 3) If separate property and community property are commingled, then separate property may be assumed to be community if it cannot be traced back. No automatic right of survivorship. Step up in basis to FMV for both halves at the death of the first spouse. No gift-splitting for community assets.

Other Ownership Topics Life Estate – interest for life. Interest for Term – interest for a number of years. Legal vs. Equitable ownership Legal – legal title Equitable – economic right