By Harvey S. Jacobs September 4, 2010
My widowed grandmother passed away recently without leaving a will. She owned her home free and clear of any mortgages. My grandmother left five surviving children: my mother, two aunts and two uncles. I am the only grandchild. My grandmother always wanted me to have her house when she passed away but never got around to making a will to leave it to me. My aunts and uncles all understand that I was to get the house and are willing to do whatever they need to do to have the house go to me. The house is now worth about $375,000. What do we all have to do now to get the house in my name?
Since your grandmother lived in the District, the first step is to open an estate for her in D.C. Probate Court. Next you will need to have someone appointed the personal representative of her estate. This is done by having letters of administration issued by the court. This person can be, but need not be, you. Often trusts and estates attorneys serve in this capacity. This person will administer your grandmother’s estate.
Because she left no last will and testament, this is called an intestate estate. The personal representative will need to list all of your grandmother’s heirs. In this case that’s your mother, aunts and uncles. Each of them would be entitled to an equal share — 20 percent each — under the laws of intestate succession.
Because your aunts and uncles are willing to let you have the house, they must disclaim their interests in this asset. This should be done in writing. You should file those disclaimers in the estate proceeding and file a certificate of disclaimer. The form certificate is available at http://www.dccourts.gov.
Once your aunts and uncles disclaim, your mother can become the sole owner. If you are the personal representative, you may, in that capacity, deed the home from the estate to your mother. That deed should recite that the conveyance is being made pursuant to an estate and that all other heirs disclaimed their interests in the home in writing.
Once your mother owns the house in her sole name, she can then deed it to you in your individual capacity. You can find detailed information and forms relating to this process at the D.C. Courts Web site.
The deed from you in your capacity as personal representative to your mother will not incur any D.C. transfer or recordation taxes. Likewise, the deed from your mother to you will be exempt from D.C. transfer and recordation taxes.
However, since your grandmother died in 2010 you will not have the benefit of the automatic stepped-up basis. For many years, ending Dec. 31, 2009, (and beginning again Jan. 1, 2011) when a person inherited real property, the basis in that property was “stepped up” to be the fair market value of that property on the date of death. However, because of certain legislative actions and inactions, the automatic stepped-up basis rules that have been in force for many years do not apply in 2010. Your basis in the home will be your grandmother’s basis, the amount she paid for the house, plus the cost of any improvements she may have made over the years.
Examples of capital improvements that increase basis include additions to the home, replacing the entire roof, repaving the driveway, installing central air conditioning, rewiring the home and any legal fees that your grandmother may have incurred to defend the title to her home. Y ou may have to do some research to calculate her basis.
Not receiving an automatic stepped-up basis means that when you sell that home you may have significant capital gains taxes to pay. These capital gains are calculated by taking your sales price minus your costs to fix up the home for sale, minus sales commission and your grandmother’s basis.
Your capital gain is currently taxed at a maximum rate of 15 percent. That rate is scheduled to change in 2011 to 10 percent for individuals making $35,020 ($70,040 for couples) or less and 20 percent for those making more. This tax is not due unless and until you sell the home.
Additional guidance on calculating basis on inherited real property is available online in IRS Pub 551.
Although you did not indicate what other assets your grandmother may have had, you should be aware that even though the automatic stepped-up basis rules do not apply in 2010, there are some other rules that may help reduce any tax liability for appreciated property in your grandmother’s estate.
For example, the personal representative may increase the basis of inherited assets by up to $1.3 million. So if the total value of your grandmother’s estate is $1.3 million or less, all of her beneficiaries will be able to inherit her assets with a current fair-market value basis. One other useful exception to the current general rule is that there is a $3 million basis adjustment available for assets transferring from the decedent to the surviving spouse or to a trust set up for the surviving spouse’s benefit (QTIP Trusts).
You mentioned that your grandmother was a widow, so this rule will not apply in this case.
As you can see, these are fairly complicated matters that may best be left to a trusts and estates attorney, but with a bit of research, patience and family cooperation you can carry out your grandmother’s last wishes without too much hassle and without the tax man taking too big a bite, at least not until you sell.
Harvey S. Jacobs is a real estate lawyer with Jacobs & Associates Attorneys at Law in Rockville. He is an active real estate investor, developer, landlord, settlement attorney, lender and Realtor. This column is not legal advice and should not be acted upon without obtaining your own legal counsel. Contact Jacobs at (301) 417-4144, firstname.lastname@example.org or ask@thehouselawy