This column first appeared in the San Antonio Express News and other Hearst Newspapers on September 4, 2020.
Dear Mr. Premack: My wife is not on the deed for our house. I would like for her to be joint on the deed. This way if I pass away, she has no problem? We are still paying on our home the mortgage which is in my name, but my wife and I are making payments on it. I would like her on the deed in case I die. I don't want her to have problems with probate or having to pay an inheritance tax. - L.H.
The deed to any piece of real property shows who owns that real property. In a community property state like Texas, property purchased before your marriage is separate property. It remains separate property after the date of marriage unless legal action is taken to change its character.
If you were to leave the deed the way it is today, your spouse has two legal rights related to the home. First, if the mortgage is being paid from community property (like earnings) your spouse has a legal right to be reimbursed for her half interest in those payments if you were to get divorced. Since you want to expand your spouse’s ownership rights, you must feel that your marriage is stable without much risk of divorce. Hence, the second already existing legal right has more impact: your spouse has the right to occupy the home for life even if she not listed on the deed as an owner.
However, that legal occupancy right is often loaded with family conflict. Do you have children from a prior marriage? The law makes your children owners of the house in the absence of your binding estate plan. They have financial obligations toward maintenance, payments, and insurance on the property as owners, even though they have no benefit from the property until your spouse dies or voluntarily abandons the homestead. Don’t do that to your children or to your spouse.
Your question says you want to avoid problems for your spouse if you die. This will require legal action on your part with a qualified attorney.
Adding her to the Deed
The first action you propose is adding her name to the deed. Doing so would only be the first step and must be done correctly. If you just add your spouse’s name to the deed, your spouse is receiving a half interest by gift. All gifts, by law in Texas, are separate property. Thus, you would each own a half interest in the house as separate property.
To get the most benefit, you want the house to be community property. Thus, the new deed must include provisions from the Texas Family Code which convert the ownership interest from separate property into community property. Doing so has potential tax benefits and opens the door for attaching a right of survivorship to the property.
Avoiding Probate
You also want to avoid probate. A traditional Will solves a lot of inheritance issues, but typically must go to probate court when you die. Methods for avoiding probate include a Community Property Survivorship Agreement (a legal contract written by your lawyer which is signed by you both, notarized, and filed in the deed records) or a Living Trust (a legal agreement written by your lawyer to split ownership between a trustee and beneficiaries). When done correctly, both of those methods pass title to the surviving spouse when either spouse dies, without probate. Both methods should still be backed-up with a traditional Will as a safety net.
Avoiding Taxes
You also want to avoid inheritance taxes. Fortunately, Texas is one of the states that has no inheritance tax. The federal government still imposes an estate tax, but the law grants an exemption currently (2022) at $12.06 million per person. Most of us have estates below that exemption amount and consequently pay zero federal estate tax on death.
Capital gain taxes should also be considered. If you allow the house to remain your sole property and your wife dies, you do not get an increase in your tax basis because she did not own any part of the house. If you gift her 1/2 the house as her separate property and one of you dies, the basis increase is only on 1/2 the property value. If you convert the house to community property and one of you dies, the survivor gets an increase in the taxable basis on 100% of the home's value. With skyrocketing home values, that step up in basis could save you tens of thousands of dollars in taxes when you sell the house in the future.
Act now. Contact us for assistance.
Paul Premack is a Certified Elder Law Attorney, handling Wills and Trusts, Probate, and Elder Law issues. He is licensed to practice law in Texas and Washington. View past legal columns or submit free questions on those legal issues here.
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