The $500,000 on your house after a spouse dies

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Good investing,

Porter Stansberry
Founder, Porter & Co.

Good morning.

There is no good way into a deed, so I will start where I said I would, with the few words typed after the owners’ names.

I sold houses for two years, badly, and sat at a lot of closing tables. Once a man signing with his wife asked me whether “joint tenants” and “tenants by the entirety” meant the same thing. I told him it was two ways of saying one thing. I was wrong, and I did not know enough at the time to say that I did not know.

First, the call I owed. I phoned Rochester on Tuesday night, my daughter read me her Social Security number while her microwave beeped, and she is now the primary beneficiary on my IRA. The contingent line is still empty. I typed my mother’s name there, remembered she is 89, and deleted it.

When two people own a house, the words after their names decide what happens to it when one of them dies. I am not a lawyer or an accountant, and none of this is advice about your deed.

Most of the deeds I saw at those closings used one of three phrases.

Tenants in common each own a share. When one dies, that share goes wherever the will sends it, or by state law if there is no will. Joint tenants with right of survivorship are different, because the survivor ends up owning the whole house whatever the will says. Tenancy by the entirety works the same way at a death, is available only to a married couple, and neither spouse can break it alone while the marriage lasts.

New York fills the gap when a deed says nothing. A deed to two people creates a tenancy in common unless it expressly says joint tenancy. A deed to a husband and wife creates a tenancy by the entirety unless it says otherwise. Rules differ between states, and some do not offer the third kind at all.

In 1974 a brother and sister took title to a property “as tenants by the entirety.” Siblings cannot hold title that way, and the deed never mentioned joint tenancy, so in 2005 a New York appeals court read it as a tenancy in common. When he died, his half belonged to his estate, and she did not get the whole property.

A joint tenancy can also be undone from one side. Under New York Real Property Law § 240-c, one joint tenant can end the survivorship by signing a deed alone. It counts only if it is recorded in the county before that person dies.

The words matter again when the house is sold. For a married couple holding as joint tenants or by the entirety, half the house counts in the estate of the first to die. The survivor’s basis becomes their own half of the original cost plus half the value on the date of death. In community property states both halves can be reset, which is one reason the same house can produce two different tax bills in two states.

The dollars themselves change between the purchase and the sale, which is what today’s sponsor writes about. The tax rules measure the gain in plain dollars all the same, with no adjustment for inflation.

A widow or widower who sells within two years of the death and has not remarried can still exclude up to $500,000 of gain, if the couple qualified before the death. The rule is in IRS Publication 523. After two years the single limit of $250,000 applies.

Adding a grown child to a parent’s deed is treated as a gift. The child’s share keeps the parent’s old basis. An inherited share would have taken the value on the date of death, and the difference shows up only when the house is sold.

My own deed has one name on it, so none of this reaches my house, though most of it reaches my mother’s.

I do not know how my parents held the house in Memphis. If it was by the entirety, it became hers the day my father died. If it was in common, his half may still belong to an estate nobody opened. I have not asked her which, because a question about a deed is harder to put to an 89-year-old than a question about a check.

She will say the deed is in the drawer with the church envelopes.

I owe my mother a question about a deed and have not decided how to ask it. If any of you hold a house or a cabin with a brother or sister, what does your deed say after the names?

WASHINGTON  The Federal Reserve publishes the minutes of its September meeting today, the meeting where it set the rate in the meter below.

MARKETS  The S&P 500 and the Nasdaq both closed at records on Tuesday.

TECHNOLOGY  New York City’s council held a hearing on artificial intelligence, and its speaker said the need for regulation was the main takeaway.

ENERGY  Oil prices fell on Tuesday morning, and Schwab’s market note credited that for the early gains in stocks.

WORLD  Markets in mainland China reopen on Thursday after the national holiday week.

TOMORROW  It will be a short one, with three questions to ask about a parent’s paperwork.

Read the policy before you need it. — Rita