Holding Joint Title to Property in California

They say that, in real estate, location is everything. I would argue that “title” counts for at least something.

Thanks to our legal system’s roots in a centuries-old feudal system dating back to the Norman Conquest of England in 1066, the ways in which title can be held are arcane. But if you share ownership rights with someone else (a spouse, a life partner, a family member, or a business partner) working through the complexities can help you avoid the time and expense of probate and pass real estate to your heirs in a tax-efficient manner.

Ways to Hold Joint Title

If you own a house, land, commercial property or other real property yourself, you probably hold title by sole ownership. As the name implies, as the sole owner, you have complete power to control the property without anyone else’s permission.

But things get more complicated when you own property with other people. When you own property jointly, the manner in which you hold title can affect how the property passes upon the death of one of the owners and whether the surviving owners enjoy any tax benefits.

Tenancy in Common

A tenancy in common creates undivided interests in land that give each co-tenant the right to possess and use the whole property. Each co-tenant can own an equal or different percentage of the property, with corresponding rights to any income and obligations for any debts. Tenancy in common is a common way to own business property or for siblings to share title to an inherited rental or business property.

A co-tenant’s interest is entirely alienable, it can be sold or given away in the same way a sole owner can sell or give away property. When a co-tenant passes away, their interest in the property passes to their heirs in accordance with their will. As a result, absent previous agreements to the contrary, it is possible for your co-tenants to change without notice.

Joint Tenancy

A joint tenancy works in a similar manner to a tenancy in common except that all of the joint tenants must share an equal interest in the property and the joint tenants may not pass their interest on to their heirs. Instead, when a joint tenant passes away, their interest is eliminated and title passes to the remaining joint tenants, equally, by operation of law. As a result, no probate is necessary to pass title to the surviving joint tenants. Once an affidavit and proof of death are recorded, title passes to the remaining joint tenants without any further process.

A joint tenant’s interest in property can be sold, but a sale will dissolve the joint tenancy and convert it into a tenancy in common, eliminating the right to survivorship.

The value of joint tenancy property is generally included in a decedent’s estate, to the extent that the decedent contributed to the purchase or maintenance of the property. But, if such amounts cannot be sufficiently proven, the entire value of the property can be included in the estate of the first joint tenant to die.

Community Property

Most married couples own their joint property as “community property.” Each spouse has an equal right to half of any property owned as community property. Each spouse’s community property interest can be sold or passed by will to anyone the spouse chooses. But neither spouse may sell or pass the other’s community property interest.

A deceased spouse’s community property interest passes through probate. So even if a deceased spouse names the surviving spouse as their sole beneficiary in a properly executed will, the surviving spouse will have to probate the deceased spouse’s estate to gain full control of the property.

Community Property with a Right of Survivorship

In California, a married couple can elect to hold their real property as community property “with a right of survivorship.” This method of holding title allows a married couple to enjoy the joint ownership right created by community property and avoid probate upon the death of the first spouse. With a right of survivorship, just like a joint tenancy, title to the property passes to the surviving spouse automatically, by operation of law, without the need for any formal court process.

Community Property with a right of survivorship can be a powerful tool for married couples. Critically, it avoids the costs of probate and trust administration. For couples whose only substantial asset is their home, this form of ownership can be key to keeping their estate plan tight and manageable. But couples with larger estates should consider creating a trust.

Trust

Holding property in trust allows owners to avoid probate and retain the ability to elect who inherits their interest in property. When title is held through a trust, legal title to the property is held by the named trustee(s), who is/are required to put the property to use for the named beneficiaries as identified in the trust.  In most cases, couples who own property through a trust will name themselves as the trustees and beneficiaries, maintaining practical control of the property while taking advantage of the flexibility that trusts create. In particular, trusts allow property owners to designate who should receive property after their death. As with a right of survivorship, property inherited through a trust does not have to pass through probate. But unlike a joint tenancy or community property with a right of survivorship, the ownership interest can pass to anyone that the decedent has identified in the trust documents.

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Contact the Law Office of Ravi Patel if you need help determining how to best hold title, how you are currently holding title, or how to change title to best meet your estate planning needs.