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Ways to Hold Title for Married Couples in California
Tenants In Common
Tenancy in common is a way that multiple related or unrelated people can take title to property. Ownership interests do not have to be equal and the interest can be specified in the deed. With tenants in common, upon the death of an owner, that owner’s interest is controlled by his or her will, or in the absence of a will through intestate succession, which means the CA probate code tells you who gets the property.
Joint tenancy means that each person owns an undivided interest in the entire property, so when one owner dies the remaining owner[s] will automatically receive the deceased owner’s interest. Because the deceased owner’s interest automatically passes to the remaining owner[s], probate can be avoided for this property unless and until there are no remaining owners. In other words, probate will occur when the last owner in joint tenancy dies. See attached for probate fees chart. Since a will or trust does not control where the property goes on the death of a joint tenant, sometimes joint tenancy is thought of as a quick estate plan. For joint tenancy property owned by married couples, on the first spouse's death the basis of the property will be adjusted to the fair market value at the time of the first death (called a "step-up" in basis) for the half attributed to the deceased spouse. This will reduce any capital gains taxes upon the sale of the property by the surviving spouse. Joint tenancy seems to be the most common way to take title, but it may not be the best way. For example, parents may not realize that by adding a child's name as joint tenant, they are actually giving that child an interest in the property that will be subject to the child's creditors.
Community Property With Right of Survivorship
Community property with right of survivorship may only be used by married couples in community property states (like California). Similar to joint tenancy, each person owns an undivided interest in the entire property and when one spouse dies the survivor automatically receives the entire interest, thereby avoiding the need for probate. As with joint tenancy property, property titled as community property with right of survivorship will not be controlled by a person’s will or trust. Community property with right of survivorship is more beneficial from a capital gain tax standpoint in that the entire property (not just the half belonging to the deceased spouse) will receive a step up in basis on the first death. This allows for a double step up if the remaining spouse continues to hold the property until his or her death. The problem with community property with right of survivorship is the same problem as joint tenancy--if all property owners die, the property must go through probate.
Trustees Of A Trust
If you have created a trust for estate planning purposes you need to make sure all your assets are properly titled in your trust. Utilizing a revocable trust is the best way for a married couple to take title. Titling property in your trust avoids probate upon the death of both the initial and surviving spouses and preserves the capital gains step up for the entire property on the first death. A grant deed cannot just name a trust but instead must list trustees as well as the trust name and date. Careful titling is necessary for a proper transfer to occur. Additionally, a trust can be helpful if one spouse becomes incapacitated because the other spouse, as the remaining trustee, will be able to sell and/or manage the property without worrying about obtaining a conservatorship or using a power of attorney.
It is usually most beneficial for a married couple in California to hold title in their revocable trust. If you are buying real property you should seek the advice and counsel of a trusts and estates attorney to see what is best for you.