The how-to’s for couples to hold title |

The how-to’s for couples to hold title

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.

Here’s a true horror story. Married couple is refinancing, title company prepares a community property deed ” until a few years ago the thing to do for tax reasons as discussed below. 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 in July 2001.

Before we 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. They may will one-half of the community property to another person upon death, but more often than not they do not, so half of the community property transfers on death to the 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 ” as noted above.

Two or more people, including spouses, may hold title to their jointly owned real estate as joint tenants. That means 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 a 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 a tax disadvantage for married couples to hold title as joint tenants.

This column has discussed the third option, Community Property with Right of Survivorship, before, but my friend’s recent bad experience with a community property deed suggests the need for a follow-up discussion.

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 joint (community vs separate) property as Community Property with Right of Survivorship, I suggest you actually deed to yourselves, so on death you receive the tax benefits 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.

© 2007

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