One of the most confusing aspects of estate planning is the numerous myths about co-ownership of property. Many people do not understand the differences between a tenancy in common and a joint tenancy with right of survivorship. Many people do not understand what a tenancy by the entirety is or was. Many people do not understand the differences between the common law forms of co-ownership and community property. Moreover, people may define their own forms of co-ownership by contract. This article discusses some of the many myths about the co-ownership of property.
Estate Tax Avoidance
There is a myth that all forms of co-ownership avoid estate taxes. The myth is not true because estate taxes generally apply to the estate of a decedent only at the moment of the decedent’s estate. Estate taxes apply to a co-owner’s share of a tenancy in common, a joint tenancy with right of survivorship, or any other co-ownership with a right of survivorship.
Gift Tax Avoidance
There is a myth that putting property in a form of co-ownership with another person avoids gift taxes. The myth is not true because putting property in a form of co-ownership with another person creates a gift subject to gift tax, if any, at least to the extent that the other person takes a share of the property.
Income Tax Avoidance
There is a myth that putting property in a form of co-ownership with another person avoids income taxes. The myth is not true because the owner’s basis in half the property put in a form of co-ownership is carried over to the surviving co-owner when the co-owner dies. The tax basis of property not put in a form of co-ownership is stepped up to the fair market value of the property at the date of the owner’s death.
Your Lawyer
It is wise to consult your lawyer when you want to make changes to, sell, or give away co-owned property. Your lawyer can help you avoid any misunderstandings stemming from the numerous myths about the co-ownership of property.