QUESTION:
My wife and I are buying a house. How should we take title?
ANSWER:
There are 2 basic options: Joint Tenants or Community Property
JOINT TENANCY
Joint Tenancy has the right of survivorship. At the death of 1 joint tenant ownership
automatically transfers to the survivor, instantly, as of the time of death. Probate is
avoided at the death of the first spouse.
COMMUNITY PROPERTY
Community Property also has the right of survivorship. At the death of one spouse,
ownership easily transfers to the survivor (if no Probate claims are filed and there are no contrary provisions in the Will). Although title transfers retroactively to the time of death,
40 days must pass before filing the simple paperwork with the Probate Court.
There are 2 big differences in the 2:
- Joint Tenancy gets a step-up in basis only on the 50% inherited portion; Federal Tax Law allows a step-up in basis on both halves of Community Property.
- The potential drawback is that community property has distinct consequences (different in every state) in the event of a potential future divorce or lawsuit. In general, a creditor first seizes the guilty spouse's separate property, then the couple's community property; however, the creditor cannot attach the innocent spouse's separate property.
Community Property is better from a tax perspective.
See
Community Property with Right of Survivorship effective 7/1/01
For more information about Community Property.
For more information about How to Take Title.
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