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“In the event of a breakup or death, one partner may find himself or herself out of a home — unless the couple had the proper legal documents drawn up,” warns the Human Rights Campaign, the nation’s largest LGBT group.
Here are three common ways to title a home and what they can mean for same-sex couples. Keep in mind that this is only an overview, and it is crucial to discuss your personal financial situation with an attorney before deciding which option is best for you. It is also vital to have a will, powers of attorney and other estate-planning documents.
Sole ownership: If the house is in one partner’s name only and that partner dies without a will, the other partner may be left with no legal right to the property at all.
If the house is titled in one partner’s name and left to the other partner in a will, the will still has to go through probate. It is possible another survivor — for example, a family member who isn’t supportive of your relationship — could contest the will.
Joint Tenancy with Right of Survivorship: If right of survivorship is specified, when one partner dies, the other becomes the only owner. While HRC notes that this is an option many couples choose and many financial advisers recommend, Lambda Legal — a national LGBT legal advocacy group — cautions that there are “potentially negative” tax issues to consider.
“First, the entire house’s value will be considered in the federal estate tax calculation. The burden will be on the surviving partner to prove contribution to the asset up to 50 percent of the fair market value of the house,” Lambda states. “If the survivor cannot prove having made such a contribution, the entire value will be included in the estate tax calculation, which could trigger estate taxes.”
There could also be tax implications if the title is originally in one partner’s name, then changed to joint tenant with right of survivorship.
“The other partner may have to provide proof of contribution to the asset or the IRS might look upon the re-titling as a ‘gift’ of half the value of the house, which could trigger gift tax liability,” Lambda states.
Tenants in common: With this choice, partners specify in their wills who they want to inherit their shares of the property. It could be the other partner or anyone else.
“For example, some couples who have children from a prior relationship choose to title their property this way so it can automatically pass to their children upon their death,” HRC notes. “Others who place their home in a living trust may choose this option as well.”
While joint tenancy assumes that each person owns an equal share, you could use tenants in common to specify that one partner made a larger financial contribution and thus owns a larger percentage of the property.