Should Mom put her house in my name?

Dear Len & Rosie,

My father died and left some cash and the house to my mother. She is 82 years old. She has put the house in my name as well as hers. Her doctor has informed her she needs a pacemaker, and now she wants to put the house solely in my name.

I have several concerns. The first is tax purposes for me. How will this affect me and my husband’s taxes for the next year? I also have other sisters and a brother who will eventually inherit part of the home. Mom’s lawyer says that she is safe with just my name on the deed, but I am not sure.

Linda

Dear Linda,

We normally do not recommend to my clients that they add their children’s names to the title of their homes. One reason why is that if you get sued if you declare bankruptcy, your mother could lose her home. Also, she would not be able to sell her home without your permission. But you wrote to us, not her. You’re certainly better off with your name on the deed. Also, if the home is titled in Joint Tenancy between the two of you, then upon your mother’s death, all you’ll need is an Affidavit of Death to remove her name from the title to the home.

If she gives you all of the home, there won’t be any immediate tax consequences.  Gifts are not subject to income tax. Your mother will have to file a gift tax return with the IRS, but she won’t have to send a check to the IRS unless she has given away more than $11,200,000 of gifts in excess of the annual gift tax exclusion (currently $15,000). You should be so lucky to have that as a problem.

The property tax of the home will remain the same. Thanks to Propositions 13 and 58 there will be no reassessment. You will lose the $7,000 Homeowner’s property tax exclusion unless you live in the home, but that will increase the property tax by less than $100. It’s no big deal.

The big deal comes in when you sell the home after your mother’s death. If she gives you the home today, it will not get a new cost basis when she dies. If you ever sell the home, you will have to pay capital gains tax on the increase in value since your father’s death, assuming your parents owned the home together. If, however, you inherit the home only upon your mother’s death, you could then sell it completely tax free.

You may also have tax problems even if you don’t sell the home. There is no property tax transfer exclusion for transfers among siblings. If you add your brother and sisters on title the way your mother wants you to the home could get reassessed and the property taxes will increase dramatically.

A  better plan would be for you to return the home to your mother, and then your mother could transfer the home to a revocable trust for the benefit of all of her children. She should meet with an estate planning attorney and discuss her objectives so she can revise her estate plan for the benefit of all of her family.

Len & Rosie

Has my brother exceeded his Authority as durable power of attorney?

Dear Len & Rosie,

After my father’s death, my mother gave my brother Stephen a durable power of attorney. Mom was never all that good with finances, and all of us agreed that it would be better for Stephen to take care of things in case anything bad happened to her.

Now I am wondering if my brother has exceeded his authority. He borrowed almost all of her life savings, over $32,000, to keep his home out of foreclosure.

Stephen signed a note for the money and agreed to pay interest at 10% per year. Mom has since reduced the interest to 7%. The problem is that she does not even know how much money Stephen pays each month, because he handles all of her finances. Mom hasn’t seen a checkbook or account statement for years.

I don’t know what I can do. Mom hasn’t got Alzheimer’s or anything and she seems happy with Stephen handling her money. I don’t know if I should sue or just leave it alone.

Edward

Dear Edward,

Stephen, as attorney-in-fact, has a very strong legally imposed fiduciary duty to your mother. Unless the power of attorney your mother signed specifically authorizes him to self-deal, he cannot loan himself your mother’s money. Of course, if your mother told him that it was OK to borrow the money, than it is perfectly legal.

An interest rate of 10%, or even 7%, is downright generous these days. Your mother is making more interest from Stephen than if she kept her money in a certificate of deposit, assuming that Stephen is making the payments like he promised. The fact that he asked your mother to reduce the interest rate implies that he is making payments. If he’s lying about it, why would he bother renegotiating the loan?

You said that your mother seems happy with the way that Stephen is handling things and that she even agreed to lower the interest on the money he borrowed. This is a free country and a competent person can do anything she wants to, even if it is not in her best interests. Still, you should talk to your mother. Make her aware of what you think is going on, and have her ask Stephen to give her the account statements showing his payments and what he’s doing with her money.

Then step back to see what happens. Hopefully everything is above board. If it isn’t, or if Stephen refuses to show your mother the books, then she should fire him. As long as your mother is still in possession of her faculties, she can revoke the power of attorney at any time. Should your mother sue Stephen if he isn’t making payments? Most parents don’t want to see their children get in trouble, no matter what they do. But if your mother is willing to go the distance, she should consult with an attorney and consider suing her son for a breach of fiduciary duty.

Len & Rosie