What are the options for holding title to real estate in California for Married Couples
As a married couple in California, there are numerous ways that you can hold title to your real estate, which include but are not limited to, Joint Tenancy, Community Property, Community Property with Right of Survivorship, and in trust. Most of the time, the best way to hold title will be in a form which is Community Property. This will be discussed below.
So why are so many properties held by married couples as Joint Tenancy?
Joint Tenancy is known as the poor persons will. Title automatically passes to the surviving joint tenant upon death of the other tenant. It is simple and effective. The origin of the use of this form of title by so many can be traced to real estate agents. At the time of buying properties, most deals are written to take title in this form. Most buyers do not consult attorneys to determine the form of title to hold when making the purchase.
Why is Community Property a more favorable way of holding title?
When you hold property in community property, under current law, the property receives a full step up in basis to fair market value at the date of death. What does this mean? The survivor is only responsible for paying taxes on any gain from the date of death forward. If they sold the property the day after the death, they would not have to pay any taxes on any of the capital gains that accumulated prior to death. However, if the property is held as joint tenancy only half of the property steps up in basis, and the survivor would have to pay taxes on half of the accumulated gains prior to death. Therefore, holding property in a form of community property can have significant tax advantages.
How do I take title as community property?
You should seek an attorney to assist you with this process. You should not take title simply as community property, because unlike joint tenancy, there is no automatic disposition of the property upon death and a probate would be required. However, California has a relatively new form of title that will allow you to hold title as community property and have an automatic disposition at death, you can hold title as Community Property with Right Of Survivorship. Another way to hold title is in your trust which designates the property as community property. Either form of designation as community property will allow you to receive a full step up in basis upon death.
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