How You Hold Title Matters
There was a deed somewhere in that mountain of paperwork you signed when you purchased your home. You may not have paid much attention to how you hold title on the deed, other than to verify your name is spelled correctly, but the designation that follows your name is very important. It determines how the property is transferred upon your death and it may also have significant income tax consequences for your survivors.
Some options in California are:
Sole name. In order to transfer the property at your death, a probate administration must be initiated with the Superior Court and a Personal Representative is appointed. The Court supervises the entire process. Distribution is made to the beneficiaries, if there was a will, or to the Decedent’s heirs if there wasn’t a will, by means of an order from the Court. Probate is a costly and time-consuming process.
Joint Tenancy. You may hold property with your spouse or another person as joint tenants. Joint tenancy assumes each party owns an equal interest in the property. At the death of a joint tenant, the surviving tenant merely files an Affidavit with the County Recorder and the property passes to the surviving tenant. Probate is avoided but a major drawback of joint tenancy is the loss of a step-up in basis. Holding property in joint tenancy may result in a higher capital gains tax upon the death of the surviving joint tenant than other forms of ownership.
Tenants-in-Common. Two or more people may hold title to equal or unequal interests in property. Upon the death of a tenant, his or her share will pass according to the provisions of a will or trust, or according to the laws of intestacy if the decedent died without a will or trust. If no trust was in place, a court probate proceeding is necessary. However, the step up in basis may be preserved.
Community Property. At the death of the first spouse, the survivor files a spousal property petition with the Superior Court. An order is issued by the Court and title passes to the surviving spouse. This process is not usually as involved or as costly as a probate administration; however, it is still time-consuming and may incur significant attorney’s fees. The step-up in basis may be preserved.
Community Property with Right of Survivorship. This is a relatively new way for married couples, or registered domestic partners, to take title in California. Upon the death of the first spouse or partner, the survivor files an Affidavit with the County Recorder and title passes to the surviving spouse. No court proceeding is necessary and the step-up in basis may be preserved.
Trustee(s) of a Trust. If you and/or your spouse established a Trust during your lifetime, and your real property was transferred into that Trust, the Successor Trustee files an Affidavit with the County Recorder upon the death of the original Trustee. The property is distributed to the beneficiaries named in the Trust Agreement. No court proceeding is necessary and the step-up in basis may be preserved.
So, pull that deed out of your file cabinet and take a look at it. Then call your estate planning attorney to determine if any change needs to be made to accomplish your goals.