One of the most often asked questions in the real estate world is “How should I take title?”
Of course, the answer depends on the circumstances. Are we talking a married couple, a business entity, a non-profit, commercial or residential, are the owners related family members, would a trust be helpful? Today’s column will focus on married couples not holding title to real estate in a trust.
Married Couple Holding Title
Here’s a true horror story. Married couple is refinancing, the title company prepares a community property deed—until a few years ago for tax reasons that was the thing to do. The consequence was a big fat probate fee for the wife to become sole owner after the husband died. That result could have been avoided.
California married couples generally have three options to take title to their community (vs separate) property real estate: community property, joint tenancy or “Community Property with Right of Survivorship.” The latter coming into play in California July of 2001.
Before I recommend the last of the three options, let’s discuss community property and joint tenancy.
Only a married couple may hold title as community property. Each may will their one-half of the community property to another person on their death, but more often than not, married couples do not, so their half of the community property transfers on death to their surviving spouse.
There is a tax advantage—a full step-up in basis—which is beneficial for the surviving spouse. The disadvantage of holding title as community property is that a probate or similar proceeding is necessary to transfer title to the surviving spouse—and that can get expensive.
Two or more people, including spouses, may hold title to their jointly owned real estate as joint tenants. There is a so-called “right of survivorship,” which means that when one dies, the property automatically transfers to the survivor without the necessity of probating the estate. That’s a good thing. A simple Affidavit of Death of Joint Tenant is filed with the Recorder’s Office. While the advantage of joint tenancy is avoidance of probate, the disadvantage is there is only a partial step-up in basis for the surviving spouse, so there is a tax disadvantage for married couples to hold title as joint tenants.
The Law Review has discussed Community Property with Right of Survivorship – before, but I still see married couples going on title as community property or as joint tenants. So we need another lesson.
As a general rule married couples should take title to any California real estate they own, accumulated during their marriage, as “Community Property with Right of Survivorship.” That’s the take-home bullet.
If you are refinancing a loan or taking title to property you want to share with your spouse, make sure the deed reads after your name: Community Property with Right of Survivorship. It allows automatic transfer on the first spouse’s death without probate to the surviving spouse—and the survivor receives the favorable tax status of community property under federal tax law. It’s a proverbial win-win.
I feel so strongly about married couples holding their jointly owned property as Community Property with Right of Survivorship, I suggest you consider deeding to yourselves now, so on death you receive the tax benefits of holding title as community property and still avoid probate. There should be no reassessment of the property as there sometimes is on recording a deed.
Check with your attorney, tax advisor or title officer. If you hold title as community property or joint tenants, ask whether as a married couple it would be prudent to prepare and record a deed to yourselves as Community Property with Right of Survivorship.
You’ll be glad you did. This column is a reprint of a previous Law Review.
Jim Porter is an attorney with Porter Simon licensed in California and Nevada, with offices in Truckee and Tahoe City, California, and Reno, Nevada. Jim’s practice areas include: real estate, development, construction, business, HOA’s, contracts, personal injury, accidents, mediation and other transactional matters. He may be reached at firstname.lastname@example.org or www.portersimon.com.
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The content contained and opinions expressed in this blog are solely those of the author. This blog contains content and opinions concerning the law generally, and is not intended to constitute legal advice or to create any attorney‑client relationship with the reader. The reader should consult with an attorney about any specific legal issues prior to embarking on any course of action or inaction involving legal matters. The author makes no claims, promises or guarantees about the accuracy, completeness, or adequacy of the contents of this blog and expressly disclaims liability for any errors and omissions.