Characteristics and Consequences of Property Titling

Question 1

Community Property States

Answer 1

• Alaska
• Arizona
• California
• Idaho
• Louisiana
• Nevada
• New Mexico
• Texas
• Washington
• Wisconsin

Question 2

Sole Ownership

Answer 2

• Fee Simple also known as sole ownership for Real Estate
• affords the most flexibility in meeting the clients objectives
• full value is included in the probate estate as well as the gross estate

Question 3

JTWROS

Answer 3

• each owner has an equal ownership interest
• tenants acquire the same interest, in the same property, at the same time, and they take possession simultaneously
• ownership of the property passes by operation of law to the surviving tenants.
• property passes outside of probate
• has potential for income tax advantage of splitting income, resulting in tax reduction when some of the tenants are in lower marginal tax brackets
• the full value of jointly held property will be included in the gross estate of the first joint tenant to die, except to the extent that the survivor can show consideration furnished for the purchase of the property.
• when received as a gift or inheritance, one the decedent’s fractional interest is included in the gross estate.
• If joint tenants are spouses, one-half of the property’s fair market value at death is included in the decedent’s gross estate. If joint tenants are not spouses, the percentage-of-contribution rule applies.
• there is a step up in basis at the date of death on the amount owned by the decedent.

Question 4

Tenancy By The Entirety

Answer 4

• joint ownership of property by spouses
• same rules apply as JTWROS
• main difference with JTWROS is that any sale or transfer of the entireties property required consent of both spouses.
• property is not subject to the creditors of an individual spouse

Question 5

Tenancy in Common

Answer 5

• two or more persons own an undivided, fractional interest in the property.
• each co-tenant owns a portion of the property separately and can transfer that interest at any time, without the consent of the other co-tenants
• each co-tenant has full testamentary power over the interest and can dispose of the interest by will.
• will be subject to probate

Question 6

Community Property

Answer 6

• separate, undivided, and equal ownership interests of husband and wife in any property acquired by the couple during marriage.
• there is no right of survivor-ship in community property and each spouse has the right of disposition over one-half of the community property.

Question 7

Separate Property

Answer 7

• property acquired by either spouse before marriage or by gift or inheritance during the marriage
• if used to acquire new property, the newly acquired property is also separate property.

Question 8

Gifts of Community Property

Answer 8

• one spouse may not make a gift without the consent of the other spouse.
• one-half of the value of the gift is considered to be made by each spouse even if the spouses elect not to split gifts.
• if separate property is converted to community property, there is a gift, but it is not subject to gift tax because of the unlimited marital deduction.

Question 9

Basis adjustment for Community Property

Answer 9

• one-half of the value of the community property is included in the gross estate, but the whole property receives a step up in basis.
• the full step up in basis is one of the main advantages of community property form of ownership.

Question 10

Quasi Community Property States

Answer 10

• California
• Washington
• Idaho
• Arizona
• Wisconsin

Question 11

Quasi Community Property

Answer 11

• when a married couple moves from a common law state to a quasi state, their separate property may be treated as quasi-community property
• if the separate property would have been community property had the couple lived in the state at the time it was acquired, then it will be treated as quasi community property
• has the same rules that apply for community property
• When a couple sells a home owned in JTWROS in a common-law state and moves to a community property state, the sale proceeds remain separate property for the spouses

Question 12

Trust Ownership

Answer 12

-The trustee takes legal title to the trust property, but the beneficiaries are granted the right to enjoy the beneficial interest in the property

Question 13

Present and Future Interests

Answer 13

• if the beneficiary has the right to immediate enjoyment and possession of the property or income, there is a present interest
• if the beneficiaries right to enjoy the property is delayed to some future date or until the occurrence of a future event, it is a future interest.
• when a grantor establishes a trust with income payable to his or her children for their lives, the children have a present interest

Question 14

Reversions Interest

Answer 14

• when a future interest is retained by the grantor or transferor
• gives the grantor or transferor the right to regain the property at a future time, after other interests have been terminated

Question 15

Remainder Interest

Answer 15

• when the future interest is held by someone other than the grantor or transferor
• the right to posses or enjoy the property after another interest ends
• EX: the grantor transfers property to his or her children for their lives and at their deaths to the grantor’s grandchildren. The children have life estates and the grandchildren have remainder interests.

Question 16

Vested Remainder

Answer 16

• cannot be forfeited
• while the right to possess or enjoy the property is delayed to a time in the future, it does not depend on the occurrence of any event

Question 17

Contingent Remainder

Answer 17

-a right that depends on the happening of a future event

Question 18

Income Beneficiaries

Answer 18

-have a right to receive income from the trust for life (life estate) or for a specified number of years (estate for years)

Question 19

Remainder persons

Answer 19

-are entitled to the trust assets remaining after the death or the termination of the income interests.