| Gifts of Property During Lifetime/Joint Tenancy |
Many people, particularly as they grow older, decide to make gifts of their property to their children or other loved ones. The advantages of this approach is that they get to see their beneficiaries enjoy the property during their lifetimes and avoid estate planning issues at the same time.
The problem with this approach is that first of all, a gift is IRREVOCABLE. Once it has been made, it cannot be taken back. There are two main reasons I have seen people that have given their children gifts of property, that they would like to take those gifts back. First is if for some reason the person giving the gift has a falling out with the recipient. Once that happens, the first thought is "I want my property back." Well sorry, once a gift is given, it is gone forever. They have every right to sell that property or otherwise do with it as they may please....even if does not please the giver. Under those circumstances that is when the recipient is least likely to give the property back.
The second reason for regretting giving a gift is sometimes when a gift is made, the giver's financial condition unexpectedly deteriorates and the value of the gift would be useful in maintaining their lifestyle. Again, once the gift has been made, there is no way to demand its return, even in the face of extreme financial hardship.
Another flavor of lifetime gifting is adding another person, usually an adult child as a joint tenant. The reason people do that is they have heard that by holding property in that form, when they die, it will go to the joint tenant, without a will or probate; and that is true, but it is a mistake that can lead to disastrous results for both the giver and the receiver of the property.
WHAT IS JOINT Tenancy?
Joint Tenancy is a way to hold title to real property in which two or more persons hold title with an equal right to share in the use and enjoyment of the property during their respective lives. On the death of a joint tenant, the rights of ownership of the property pass to the survivors, until finally it goes to the last survivor. Holding property in Joint Tenancy with your intended heir will avoid probate. Upon the death of one joint tenant, the property becomes the other joint tenant's without probate. However, there are several problems that frequently arise with this approach.
JOINT TENANCY GIFT IS IMMEDIATE.
Parents often place property in Joint Tenancy to leave the property to their children after they die. This is a commonly misunderstood point of law. It is when the deed is signed giving title, not your intent as to possession, which determines when the gift has been made, and full rights of ownership are transferred.
JOINT TENANCY GIFT IS IRREVOCABLE.
Another problem of joint tenancy is that the gift is irrevocable. Once another person's name has been put on the Deed as a joint tenant, the giver cannot change his or her mind and take that person off. If the receiver of the joint tenancy threatens the security of the giver's interest by pledging it as security or trying to sell it, or, if they are named a defendant in a lawsuit and a judgment is obtained against them, or if a tax seizure or a tax lien is filed against them, or if they are married and become divorced, that property may become subject to levy without notice.
The risks involved in putting anyone else on the title of your property, either as a gift or by placing them on title as a joint tenant, far exceeds any possible benefits in simplifying estate planning. In fact, for the reasons discussed above, it can create an unexpected nightmare and should be avoided at all costs.
CAPITAL GAINS TAXES AND LIFETIME GIFTS .
The person receiving a lifetime gift takes it at the giver's cost basis. If the person receiving the gift then sells property that has appreciated between the time the giver acquired the property to the time of sale, the recipient of the gift would be responsible for any capital gains tax on the difference between the acquisition cost and the selling price. However, if a beneficiary inherits property upon death, rather than receiving it as a lifetime gift, the beneficiary would take that property with a cost basis of the current market value, significantly reducing capital gains tax upon its sale.
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