Lesson 3: Types of Property Interests Flashcards
When would a decedent’s property be subject to ancillary probate?
A) If the decedent is a resident of one state and owns a real property interest in an LLC in another state
B) If the decedent is a tenant in common in real estate with an unrelated person and the property is located in a state other than the state of domicile
C) If the decedent was a resident of a community property state
D) If the decedent owned a life estate in real property located in a state other than his state of domicile
The correct answer is (B).
None of the other answers describe circumstances under which the decedent’s property would be subject to ancillary probate.
Which of the following states is not a community property state?
A) Louisiana
B) California
C) Wisconsin
D) Mississippi
The correct answer is (D).
All of the other states are community property states.
Teresa and her brother Michael decide to purchase a condo together. They both want to use the condo for family vacations. The price of the condo is $620,000. Michael expects to use the condo 60 percent of the time and Teresa 40 percent of the time. Michael contributed $372,000 and Teresa contributed the balance. Their ownership percentage equals their contribution percentage. Which type of property titling must the condo be to reflect their ownership interest?
A) Community property
B) JTWROS
C) Tenancy in common
D) Tenancy by the entirety
The correct answer is (C).
JTWROS because they own unequal ownership percentages. Tenancy by the entirety and community property must be owned by married partners.
Cody and Chelsi, who are married to each other, own their home together titled as community property. They purchased the home three years ago for $200,000. After improvements and a surge in the market, the home is now worth $400,000. If Cody died today and left his share of the home to his daughter Alyssa, what is Alyssa’s federal income tax basis in the home?
A) $50,000
B) $100,000
C) $150,000
D) $200,000
The correct answer is (D).
Cody’s one-half interest in the home will have a basis of $200,000 due to a step to fair market value of both halves at Cody’s death because the property is owned as community property.
Jack and Jill are not married and own farmland titled as joint tenants with rights of survivorship (JTWROS). Jack originally contributed $90,000 and Jill contributed $60,000 toward the purchase price. The land is currently valued at $800,000 and each of them has a 50 percent interest in the property. If Jack died today, what amount of the value of the farmland would be included in his gross estate?
A) $90,000
B) $400,000
C) $480,000
D) $800,000
The correct answer is (C).
Property owned JTWROS follows the actual contribution rule for non-spouses for inclusion in the gross estate. Therefore, since Jack contributed 60 percent of the property, his estate will include 60 percent of the fair market value (60% × $800,000 = $480,000).
Bob and Charles own a townhouse together and are not married. Charles contributed 30 percent of the purchase price and Bob contributed 70 percent of the purchase price. Each of them has an equal interest in the property. Which of the following are permissible ways they could title the property?
I. Sole ownership
II. Tenancy in common
III. Joint tenancy with rights of survivorship
IV. Tenancy by the entirety
A) I only
B) II and III
C) I, III and IV
D) II, III and IV
The correct answer is (B).
The property could be titled either as tenancy in common or joint tenancy with rights of survivorship. The property could not be owned as tenancy by the entirety because Bob and Charles are not married. Sole ownership is not an option because there is more than one owner.
Sherri purchased a home many years ago for $100,000. She married Gary five years ago when the house was worth $200,000. Sherri and Gary live in a community property state. Assume Sherri died today and left her entire interest in the property to her son Cody. The property is currently valued at $400,000. What is Cody’s basis in the home after Sherri’s death?
A) $0
B) $100,000
C) $200,000
D) $400,000
The correct answer is (D).
Gary does not own any interest in the property. Sherri purchased the home before she was married to Gary. At the time of marriage, the property remained Sherri’s separate property. When Sherri died, her interest (100 percent) transferred to Cody. Thus, Gary does not own any of the property and does not have any basis in the property. Cody will have a basis of $400,000 (the step-up basis).
Dennis died recently leaving all his assets in a trust for his wife, Sandy. Dennis was concerned that Sandy would not be able to manage her money adequately to maintain her standard of living. Therefore, Dennis placed the assets into a spendthrift trust and gave Sandy the right to receive a certain amount of income each year. Dennis appointed his good friend Richard to be the trustee of the trust. How is Richard’s ownership classified?
A) Richard holds a life estate over the property.
B) Richard holds the legal title to the property.
C) Richard holds the equitable title to the property.
D) Richard does not hold an interest in the property.
The correct answer is (B).
Richard holds the legal title to the property as trustee for the trust. Sandy as the beneficiary holds the equitable title. A life estate identifies the person who has a current beneficial right in the property, which in this case would be Sandy.
A tenancy by the entirety is a property-titling regime that exists between whom?
A) Spouses only
B) Spouses or between parents and adult children
C) Any members of the same family
D) Any two individuals
The correct answer is (A).
In those states that allow tenancy by the entirety, it exists only between spouses.
Four people own one piece of property. Which of the following forms of property ownership titling of those listed must they use?
A) Life estate
B) Tenancy by the entirety
C) Community property
D) Tenancy in common
The correct answer is (D).
A life estate is only appropriate if the ownership is split between present interests and future interests. It is not appropriate for four concurrent tenants. Tenancy in common is the only one of the choices that allows four owners. Both tenancy by the entirety and community property are between two spouses.
