Sorting out condo insurance mess

Don't get stuck paying for damage caused by neighbor negligence

By Inman News Feed
Add Comment Add Comment | Comments: 2 | Posted Jan. 12, 2011

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DEAR BENNY: I am paying cash for a condominium that my daughter will live in, and I am going to settlement shortly. I was planning to have the title in my name only and have the property willed to her. Would this be better than having her name included on the title (joint ownership with rights of survivorship)? The will would convey the condo 100 percent to her and other assets split between her and the grandchildren. There are no other contestants to the inheritance. --David

DEAR DAVID: That's an excellent question and I am glad you have given thought to this issue. All too often, people make rash and hasty decisions, and then later regret their actions.

Let's look at both options: (1) taking title with your daughter as joint tenants with rights of survivorship. On your death, the house will automatically be hers. This is known as a "transfer by operation of law." Perhaps the main advantage is that your daughter would be able to avoid having to probate your estate. But since there are other assets, unless you set up a trust, probate will still be necessary. You should consult an attorney to guide you through the process of creating a trust and weigh the pros and cons of this approach.

However, I see two potential disadvantages here.

First, it may become necessary in the future for you to need money, and you may need to sell the house. Although you may have a great relationship now with your daughter, she may balk at selling if she has an ownership interest in the property. Second, you may be subjecting her to potential tax obligations when she ultimately wants to sell.

Congress recently reinstated the stepped-up basis. That means that when you die, if she inherits the property, her tax basis will the market value of the house on the day you die. Thus, if she sells the house for that value, she will not have to pay any capital gains tax. But if she is on title with you, as joint tenants, she will be a one-half owner, and thus her basis will be 50 percent of the purchase price. On your death, while she will get a stepped-up basis, the bottom line is that the numbers will not be as high as if she inherited the entire property.

Or if she inherits the property, the analysis is the reverse: She will have to probate your estate, but her basis for tax purposes will most likely be higher than if she was on title with you.

It's a close call, although my preference has always been to let your children inherit the house. Discuss your situation with your own tax advisers.

Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@inman.com.

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1. Sean Mooney said... on Apr 24, 2014 at 03:37PM

“The title just about says it all - condo claims like these are always a mess. Who's fault is it and who is responsible? My recomendation is: always assume that your neighbor has no insurance and the master policy will never kick in unless the whole building is destroyed. This way, you carry enough coverage on your own policy to cover all damage. The only way John can win in court against his neighbor is to prove that there was negligence (i.e. this was an ongoing problem that occurred multiple times and was never addressed.) Outside of that, you probably won't win because the burden of proof would be on you. My other recommendation for any person who resides in a condo is to always add on water / sewer backup coverage to their policy. When you have multiple units sharing the same water and sewer lines it is very common for backup issues to occur. And if all of these fail I suggest living on the top floor of a building and let gravity protect you.”

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2. rala said... on Aug 12, 2014 at 11:01PM

“HO-6 or condo insurance policy comes in handy when disaster like water leaks strike, more info at: http://housinginfoblog.com/ho-6-policy-need-condo-insurance/”

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