Law Review: New form of holding title for married couples
As of July 1, married couples will be able to hold title to California real estate differently than they have been able to do in the past.
Married couples generally take title as community property or as joint tenants, generally the former.
If two people, including spouses, hold title as joint tenants, there is a right of survivorship, which means that when one dies, the property automatically transfers to the survivor without the necessity of probating the estate. A simple Affidavit of Death of Joint Tenant is filed with the Recorder’s Office. While the advantage of joint tenancy is the avoidance of probate, the disadvantage is there is only a partial step-up in basis for the surviving spouse, so there is an income tax disadvantage for a married couple to hold title as joint tenants.
If a married couple holds title as community property, they may will their one-half of the community property to another person on their death, but if they do not, their half of the community property goes to the surviving spouse. The advantage is there is 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 some other type of court proceeding is necessary. Nonetheless, most married couples should hold title as community property because of the income tax benefit.
As of July 1, Californians have the benefit of both worlds. Married couples may take title as “community property with right of survivorship.” Holding property as “community property with right of survivorship” 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.
As a general rule, after July 1, 2001, married couples should take title to any California real estate they own, accumulated during their marriage, as “community property with right of survivorship.”
The community property status may be terminated prior to the death of either spouse, which would be appropriate in the event of a dissolution of marriage. Normally, on dissolution of marriage, couples will take title as tenants in common.
What is as yet unanswered by the experts is whether married couples who now hold title as joint tenants or as “community property” should deed to themselves as “community property with right of survivorship,” so they receive the tax benefits of holding title as community property with the benefit of avoiding probate.
After July 1, married couples should consider recording a deed to themselves as “community property with right of survivorship.” Check with your attorney or tax advisor first.
Jim Porter is an attorney with Porter/Simon, with offices in Truckee and Reno. He is a mediator and was the Governor’s appointee to the Bipartisan McPherson Commission and the California Fair Political Practices Commission. He may be reached at firstname.lastname@example.org or at the firm’s web site http://www.portersimon.com
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