Real Estate Beneficiary Deed

[Ned Devine]

I am retired and part-time now and try to stay away from difficult tax returns.  However, I have been approached by a friend concerning a beneficiary deed and wanted to make sure I am giving him the correct information.

He obtained real estate from his mother via a beneficiary deed.  My understanding is that the property immediately became his upon her death. 

Is this treated the same as a will?

If so, is his basis the value of the property at the date of her death?

More or less, that if he sales close to the time the property became his, it will be a wash sale resulting in little or no capital gains taxes?

Thanks for any input!

[qbteachmt]

MT is one of the States with TOD or beneficiary deed. Even car titles can have it. The property would be basis stepped up for FMV on date of death. This function bypasses probate and wills and even trusts. You might put everything except the real estate in a trust, and TOD (transfer on death) specific real estate to specific parties.

[BobKamman]

Just be careful that the equity in the real estate isn't needed to pay the debts for which insufficient funds are available from trust or probate assets.  And, that the state doesn't have a lien on the property anyway for Medicaid expenses.  Generally, people who "mix and match" trusts, wills, TOD and beneficiary designations among their assets, are much more likely to be survived by others dealing with unintended consequences.

[Ned Devine]

I think there are no debts associated with his mother.  I think the beneficiary deed probably was done to allow him to sell property more quickly.  I just wanted to make sure it didn't change the step up basis and put him in a situation where he would have to pay capital gains taxes.  From what I am gathering from both of your replies that this is not an issue and with a quick sale the property value at the date of death and the sale date would not create significant increase in value therefore there would be little to no capital gains taxes.  In theory, with the additional cost to sale the property, realtor fees, etc, there could even be a small loss.  Am I thinking right?

Thanks

[qbteachmt]

For those States that handle titled property like this (not all States provide this; I think ours got it with the 2007 legislative session), it's no different than passing through inheritance. It's a legal construct for titled/deeded property. It's the same concept as your IRA account can have a beneficiary, bypassing a will, a trust, and probate. Payable on Death and Transfer on Death are alternative ways to assign assets upon the death of the original owner.

Once it is his, he can do anything he wants with it.