[alekmarie]

My sister recently died after a long illness. Two weeks prior to her death, she added me as joint tenant with right of survivorship to the deed to her home. I am also executor of her will, her estate being under $300K. In the will, my OTHER sister and I are to split all proceeds from the sale of her home and any other item 50/50- the house was the only thing to sell. We just closed on the home, 2 months after her death, and sold it for just under the value, as we had an appraisal done. Do we need to pay any taxes on this and if so, how much or how do we figure this? Thank you in advance for your help.

[AtlantaTaxExpert]

First, my condolences on the loss of your sister!

At $300K, no federal estate taxes will be due.

Not sure about Arizona inheritance taxes, but I would be surprised if any tax is due there. A call to a AZ-based tax pro should answer that question.

In my opinion, there is a complication because your sister effectively put the house in YOUR name. The joint tenancy with right of survivorship overrules the instructions in the will as a matter of law (check this with a AZ-based estate attorney, as I am not a lawyer).

If the attorney confirms what I suspect, the house BELONGS TO YOU! The rest of the estate can be split 50/50. However, if you give your sister half the proceeds of the sale, you have made a gift of about $150K to your sister. At a minimum, a gift tax return will have to be filed, though you will probably be able to avoid paying any gift taxes by using part of your estate exemption.

All of this could have been avoided if your sister had just left the house in just her name and allowed the will to be the guiding document in the settlement of her estate.

Oh, well, live and learn!

[alekmarie]

Thank you for your response AZ Tax Expert!
I confirmed the house is mine, per law, but my sister who passed away wished the immediate sale and then the proceeds to be spilt 50/50 between the remaining 2 of us. I was put on the home 2 weeks before her death to sell the home and split the proceeds (again, although I am also the executor of the estate). There is nothing outside of the estate, the home is the only item of value. Proceeds were roughly 120K when the mtg and all other loan fees/buyer fees were paid. The title company has not issued the checks yet and I can get them done properly if I know what the tax ramifications are in this situation. Also, please know this was all done within a 2 month time and the house was sold under market value- I had no equity in the home from the time it was deeded to me from the time of the sale. My thought was to split this with my sister, having her get her funds through the title company. The title company issues 1099's for all parties- whether taxes are due or not. Do I pay taxes on my part or the whole proceeds? And, I am not sure what you mean by my part of the estate exemption being used to not pay taxes. If the house is mine and the will does not hold any weight, since the house is the only issue, where does this leave me? I really appreciate your time! Thank you.

[AtlantaTaxExpert]

AlekMarie:

I understand your concern, which is why you must seek legal counsel. I am located in Atlanta, Georgia and am not fully cognizant of Arizona estate tax law.

There may be provisions in said law that allowed your deceased sister to put you on the deed without denying your other sister her fair share of the house.

But I do not think so. The concept that "joint tenancy with right of survivorship" takes precedence over the instructions in a will is pretty unversal.

However, these are legal matters, and, once again, I am NOT an attorney.

Seek out an estate attorney and get his/her guidance on this matter. It may cost the estate a few hundred dollar in legal fees, but it has the potential of preventing some major headaches down the road.

As for the estate tax part, NO federal estate taxes are due; the estate simply is not large enough. I suspect that the same applies for Arizona inheritance taxes, but I do not know for sure, which is another reason to see an Arizona-based estate attorney.

Go see the estate attorney NOW!!