Home & Garden

Tax-wise, it's better to inherit the home

Q. My mother-in-law is 93. In her will, she is leaving her home to her three sons. Her home is in need of major repairs, probably to the tune of $15,000. My husband and I are the geographically closest to her residence and will have the responsibility of the repair and sale. Would it be to everyone's benefit to quitclaim the house to my husband or perhaps put it in an irrevocable trust that names him as beneficiary?

Didn't you say that the house is being left to her three sons? Why should your husband be made the sole owner of the property? That doesn't seem fair.

But, assuming your motives are pure, there's a number of ways to handle this. One would be to put the home in a trust. It can be a revocable trust naming all three sons as the beneficiary of the trust.

For tax purposes, it would be much better tax-wise if your husband and his siblings inherit the property rather than receive it by quitclaim deed. If they inherit the property, even through a trust, they will inherit it at the property's value on the day of your mother-in-law's death. If she gives them the house using a quit claim deed, they will receive it at her cost basis. When they sell, there could be large capital gains taxes to pay. If they inherit the property and then sell it, they shouldn't have any taxes to pay.

But your question seems to be about shouldering the burden of repairing the property. If the property needs $15,000 in repairs, the estate could reimburse you for those expenses. If there is no cash in the estate, but putting in $15,000 of repairs would return $30,000 of increased sales price, then your husband should either front the cash (if you have it) and be repaid out of the sales proceeds exactly what he put in before the profits are divided, or each of the siblings could contribute $5,000 toward the repair costs.

But if you decide to put in that money now for repairs, make sure you have something in writing from your mother-in-law to make sure everyone understands what's happening. You need to make sure you are repaid that money when the home is sold.

Q. I have a friend who is married. Her husband bought the house they live in before they were married and has not added her name to the deed. When they got married, she sold her house and moved in with him and used her house money to repair and fix up his house. What would happen if he should die or they divorce? He has two kids from a previous marriage.

Your friend has not thought about how she will be protected in case her spouse dies.

If nothing changes, and he dies, she might not be protected. As a spouse she might inherit half of the house and may have some other protections under her state's laws. If her husband has no will, she would likely be entitled to half of the house. But if he has a will and the will states that the home is to be given to his kids, she's going to have a problem.

If they divorce, and she can prove that her cash was used to pay for improvements to the property, then she might be able to get some of that back in the divorce settlement. But she'll have to spend a lot on attorneys to make that happen.

What can she do? If her spouse is as interested in protecting her as she should be about protecting herself, there are several steps they can take: He can use a quitclaim deed to deed the house from his sole ownership to joint tenancy with rights of survivorship or as tenants by the entirety (if the state in which they live allows this form of ownership). She'll own half of the property, and if he dies she'll get it all. They should have an understanding now about what he wants to do with the house. They are far better off having the discussion now rather than later.

Along the same lines, he can execute a will that gives her the ownership of the property after his death. Or, she can become a half owner of the home along with his children.