Chapter 3 - Types of Property Interests

Question 1

Define Actual Contribution Rule

Answer 1

The value of a decedent’s joint interest in property is based on the actual percentage of the original purchase price contributed by the decedent - not the decedent’s ownership percentage. Does not apply to married couples.

Question 2

Define Ancillary Probate

Answer 2

Concurrent second probate process conducted in a non-domiciliary state in which the decedent owns real property, which often requires the services of an attorney from that state, and separate court fees.

Question 3

Define Community Property

Answer 3

A regime in which married individuals own an equal undivided interest in all of the property accumulated, utilizing either spouse’s earnings, during the marriage.

Question 4

Define Equitable Ownership

Answer 4

Possession of the economic right to property. Typically associated with use of the property.

Question 5

Define Fee Simple

Answer 5

The complete ownership of property with all the rights associated with outright ownership.

Question 6

Define Intangible Personal Property

Answer 6

Property that cannot truly be touched such as stocks, bonds, patents, and copyrights.

Question 7

Define Joint Tenancy (with right of survivorship)

Answer 7

An undivided interest in property held by two or more related or unrelated persons, generally includes a right of survivorship.

Question 8

Define Legal Ownership

Answer 8

Possession of legal title to the property. Owner possesses all rights, duties, responsibilities, and privileges associated with the property. Only someone with legal ownership can convey the property.

Question 9

Define Life Estate

Answer 9

An interest in a property that ceases upon the death of the owner of a life interest or estate and provides a right to the income or the right to use property or both.

Question 10

Define Quasi-Community Property

Answer 10

Property that would be community property had the married couple living in the community property state at the time of acquisition (applies to married couples who move from a common law (separate property) state to a community property state.

Question 11

Define Real Property

Answer 11

Property that is land and buildings attached to the land.

Question 12

Define Residence Domiciliary

Answer 12

An individual’s legal state of residence.

Question 13

Define Tangible Personal Property

Answer 13

Property that is not realty and may be touched.

Question 14

Define Tenancy by the Entirety

Answer 14

A JTWROS that can only occur between a husband and wife.

Question 15

Define Tenancy in Common

Answer 15

An undivided interest in property held by two or more related or unrelated persons.

Question 16

Define Term Interest

Answer 16

An interest in property that ceases after a defined period of time.

Question 17

Define Usufruct

Answer 17

A Louisiana device similar to a life estate which provides the holder with the right to use property and/or the right to income from the particular property.

Question 18

What are the three categories all property interests can be classified into?

Answer 18

• Real Property
• Tangible Personal Property
• Intangible Personal Property.

Question 19

What are the common legal forms of ownership? 5

Answer 19

• Fee Simple
• Tenancy In Common
• Joint Tenancy
• Tenancy By The Entirety
• Community Property

Question 20

When two unmarried people hold a property JTWROS, what is the exception to the Actual Contribution Rule?

Answer 20

Exception for gift of a joint interest in a bank account or Series H bond. In these situations, a completed gift is not made until the noncontributing owner takes a withdrawal from the account for his own personal benefit (equal to the amount of the withdrawal).

Question 21

What are the four key components of Tenancy by the Entirety?

Answer 21

1. Tenancy by the entirety applies to joint ownership only between married couples,
2. Neither tenant is able to sever their interest without the consent of the other tenant (spouse).
3. Property ownership interest is automatically transferred to the surviving spouse upon death, and
4. It may involve the ownership interest of either real or personal property.

Question 22

When does tenancy by the entirety end?

Answer 22

Upon death or divorce.

Question 23

In a community property state, what retains its status as separate property?

Answer 23

• Property attained before marriage

- Property received by gift or inheritance during the marriage.

Question 24

When does separate property lose its status as separate property?

Answer 24

When it is commingled with community property.

Question 25

How can community property status be dissolved?

Answer 25

• Death
• Divorce
• Agreement between the spouses.

Question 26

Which type of ownership allows for both portions of property to get a step up in basis upon the death of one of the owners?

Answer 26

Community Property

Question 27

What are the three most common types of property titling that represent partial ownership?

Answer 27

• Life Estate
• Usufruct
• Term Interest

Question 28

What benefits does someone that has equitable ownership of a property receive? 4

Answer 28

• The right to possess the property
• The right to enjoy the property
• The right to use the property, and
• The right to receive income from the property.

Question 29

What are the five most important planning questions concerning the various property ownership forms?

Answer 29

1. What value or % of value is included in a decedent’s gross estate?
2. Is the property included in the decedent’s probate estate?
3. Does the property have an automatic right of survivorship?
4. Will the value of the property qualify for unlimited marital deduction?
5. Can an interest in the property, if jointly held, or an interest in community property, be partitioned without the consent of the other joint or community interest?

Question 30

Which property ownership types have automatic-survivorship?3

Answer 30

• JTWROS
• Tenancy by the Entirety
• Community Property WROS

Question 31

Which property ownership types are included in the probate estate?3

Answer 31

• Fee Simple 100%
• Tenancy in Common %-owned
• Community Property 50% of value

Question 32

How is value included in the Gross Estate for each ownership type?

Answer 32

• Fee Simple: 100%
• Tenancy in Common: %-owned
• JTWROS: Acutual Contribution Rule or %-owned
• Tenancy by the Entirety: 50%
• Community Property: 50%