Copyright 1996, Marc S. Weissman
Certified Specialist: Estate Planning, Trust and Probate Law
Certified by the California Board of Legal Specialization of The State Bar of California
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HOW TO TAKE TITLE

This Article is designed to be of general interest. The specific techniques and information discussed may not apply to you. Before acting on any matter contained herein, you should consult with your personal legal adviser.

Most married couples consider only JOINT TENANCY or COMMUNITY PROPERTY. Which is best for you? Probably neither, but that depends, and can only be determined by you with professional advice. Each has distinct features, advantages, and disadvantages, some of which are briefly summarized here.

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.

[Every inherited asset receives a "free step-up in basis." It is treated (for future income tax purposes) as costing the recipient its value on the date of death of the decedent. All pre-death capital gains are forgiven. For example, if you inherit stock which cost Uncle Bob $45 but was worth $100 at his death, it is treated as costing you $100, whenever you sell it.]

If H and W buy a house for $100,000 as joint tenants and H dies when it is worth $300,000, W's tax cost is $200,000. The survivor receives a step-up in basis only for the one-half `inherited' through Joint Tenancy. [H's share is valued at date of death value ($150,000), plus W's share is valued at her historical cost ($50,000).]

JOINT TENANCY IS USUALLY THE WORST CHOICE [FROM A TAX PERSPECTIVE] FOR A MARRIED COUPLE.

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.

At death of the first spouse, both halves receive a "free step-up in basis." Why is this different from joint tenancy? It's the law! Does it make sense? Why should it?

So, if H and W buy the same house for $100,000 as community property, and one spouse dies when it is worth $300,000, the survivor's tax cost basis is $300,000. [Both shares are valued at the date of death value.]

The potential drawback is that community property has distinct consequences 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 for taxes.

For more information about Community Property, click here.

See

  • Community Property with Right of Survivorship effective 7/1/01

    LIVING TRUST

    Probably, the best solution to ownership of real estate is a Living Trust.

    For more details on Community Property

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