4 WAYS FOR SPOUSES TO HOLD TITLE IN CALIFORNIA
REAL ESTATE PRACTICE, TIPS FOR BUYERS, TIPS FOR SELLERS, TIPS FOR SENIORS
August 11th, 2008
Until recently, married couples had three choices when it came to deciding how to hold title: as their community property, joint tenants or tenants in common. Effective July 1, 2001, California enacted a new civil code allowing husband and wife to hold title as “community property with the right of survivorship“. This new method of taking title combines the right of survivorship benefit of joint tenancy and the desirable tax features of community property. Speak to your attorney or accountant, before closing escrow, for advice on which vesting works best for your legal and financial profile.You can always change the manner you hold title, even if the escrow has closed.
The main impact with this new form of taking title, which can also be utilized by domestic partners, has to do with estate planning and tax treatment. The differences in the ways of holding title revolve around what happens when there is a death of one of the spouses or domestic partners. If title is held as community property, there is an automatic “stepped up” tax basis for both halves of the property upon the first death of a domestic partner or spouse, but no automatic transfer of title to the surviving spouse/domestic partner (probate will be required). Joint tenancy provides the immediate and automatic transfer of title (no probate) to the surviving spouse, but only the decedent’s portion of the property receives the stepped up basis. The new form of holding title avoids probate and steps of the value of both halves of the property.
A “stepped up basis”, as it relates to federal and California law, is very important when it comes to calculating tax liabilities. The tax basis is set at the fair market value on the date of death of the decedent. For example, if you just inherited a property your uncle purchased in 1960 for $20,000 that is worth $250,000 today, your tax basis becomes the $250,000 not the $20,000 your uncle paid for the property. When you sell the property, your gain will be the difference between the sales price and the $250,000 tax basis value.
Under joint tenancy, only the surviving joint tenant receives the stepped up basis. For example, a husband and wife hold property they purchased for $10,000 as joint tenants and today its worth $200,000. When one spouse dies, each has their original basis of $5,000 each, the other receives a step up in basis on their half or in this case $100,000. The other half of the property has a $5,000 basis.
Under community property, both federal and state law allow for a stepped up basis for both halves of the property upon the death of the first spouse. In the preceding example, the surviving spouse would have a new basis of $200,000.
Right of survivorship provides that on the death of one co-owner, the title of the property automatically transfers to the surviving spouse without probate or other legal proceeding. The right of survivorship is the main advantage to joint tenancy as an inexpensive estate planning tool that avoids the expense and complication of drafting and probating a will or administering a trust.
To take advantage of this relatively new way of holding title, have a deed prepared granting the property to yourselves as “John Doe and Jane Doe”, as their community property with right of survivorship. A title company will typically prepare the deed, especially if they handled the transaction when you bought the property. When you buy a property, the title company will give you the option of selecting the manner in which you will hold title. Title companies and real estate agents cannot advise you as to the appropriate way to hold title.
Call me if you need assistance with any real estate matter. I offer a free comparative market analysis of your real estate holding. Expert buyer representation available. Contact me @;
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER
REAL ESTATE PROFESSIONALS GMAC
QUARTER CENTURY LOCAL REAL ESTATE EXPERIENCE
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