How should your married client’s title property? As a Nevada divorce attorney, I am always looking for ways to maximize my client’s estates. When they divorce, they have to divide their assets in half. Here is a way to keep more of your estate, hoping you stay together.
Most of the time when a married couple sits down at the time of escrow to choose how their title should appear on the deed to their new home, the decision is made for them. Almost every time, they are presented with a deed that states “Husband and Wife as Joint Tenants”. And almost every time, this is not the best way for a married couple to take title. When it gets to this point, they have signed (and most likely) ignored to have read hundreds of pages of mortgage and title documents they just stated they read and understood. They are given no guidance in what is usually the best way for a married couple to own a property in Nevada: Community Property with Rights of Survivorship (CPRS).
Like Joint Tenancy, holding title as CPRS, means the surviving spouse will take 100% interest in the property upon the death of the first spouse. So, what’s the difference? In a joint tenancy, the married couple has an undivided interest in the home. In CPRS, each spouse owns an equal portion of the property. While this may simply sound like semantics, this can have a significant tax consequence in increasing estate taxes or capital gains that would have been unnecessary. If a couple holds property as joint tenants, the surviving spouse receives a stepped up basis in the decedent’s share only. In CPRS, the surviving spouse gets the advantage of automatic transfer of the decedent’s interest and a stepped up basis in the entire property.
For example, assume a married couple buys a property for $100,000 as joint tenants. When the first spouse dies, the surviving spouse sells the property for $600,000 to move into a smaller new home. As the surviving spouse only receives a stepped up basis on half, she realizes a capital gain of $250,000 on her half of the $500,000 gain. This amount counts toward any capital gain tax or estate tax exemption she may have. If they took title as CPRS, the surviving spouse takes ownership of the entire property at the stepped up basis of $600,000. Thus, there is no capital gain, and there is no amount counted toward her estate tax exclusion.
While some people are still underwater on their homes in Las Vegas, many people are taking advantage of acquiring properties at cheap prices. Property values rose significantly last year, and it will not be uncommon for people to face this problem in the future. They can also avoid this tax problem by placing their property in a trust, which will avoid similar estate tax problems.