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Roberts V. Tuckey Case Study

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I. QUESTION PRESENTED What is the impact of Mr. Roberts and Ms. Turley holding their new home as joint tenants in a community property state? II. SHORT ANSWER By opting to hold the new home as joint tenants in a community property state, the couple will realize the higher level of creditor protection afforded by a joint tenancy but will lose the significant tax benefits afforded under the community property tax regime. III. STATEMENT OF FACTS John Roberts and Alice Turley are going to be married in the near future. They currently reside in a home solely owned by Mr. Roberts but plan to purchase a new $300,000 home after they are married. They currently live in a community property state and have decided that they wish to title the property…show more content…
Impact of Joint Tenancy in Community Property State Mr. Roberts and Ms. Turley are currently seeking to title their new residence as a joint tenancy in a community property state. This will provide them with the marginally superior creditor protection discussed above, with creditors of either spouse only being able to receive half of the property. While creditor protection may be stronger for this form of property ownership, it also allows either spouse to freely transfer their interest in the property and sever the joint tenancy without the consent of the other spouse. Opting to hold the new home as joint tenants instead of through a traditional community property structure will lead to negative consequences upon the death of the first spouse. To express this consequence we will analyze the different results assuming that five years have passed and the value of the home has increased to $450,000. In both forms of property ownership, each spouse will hold a half interest in the home with a value of $225,000 and a basis of $150,000. When one spouse dies holding this interest, the other will receive the entire interest with a higher basis. When the property is held as joint tenants, only the half that is held by the deceased spouse will receive a “step-up” in basis. This will leave the surviving spouse with property with a value of $450,000 and a tax basis of $375,000. When the property is held as community property, the entire property will receive a step-up in basis as…show more content…
Mr. Roberts and Ms. Turley should consider holding the property under the general principles of community property instead of attempting to hold the property at joint tenants. This will allow them to realize the large tax benefit provided for spouses under the community property regime. If Mr. Roberts and Ms. Turley live in a state where community property with a right of survivorship is recognized, they could utilize this form of property ownership to recognize the “best of both worlds.” James Ratner, Community Property, Right of Survivorship, and Separate Property Contributions to Marital Assets: An Interplay, 41 Ariz. L. Rev. 993
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