Purchasing a new home is an exciting yet stressful time.  Once the offer is accepted, escrow is opened, and there is so much to do – packing up, arranging moving, completing financing. The list goes on and can be overwhelming.  Of course, it is during this busy time when a homebuyer is the most distracted that an escrow officer is going to ask how do you want to hold title to your new home.  It can almost feel like an afterthought and many simply choose the one that sounds “right” without knowing the true ramifications or potential consequences down the road.  And even if you take a second to think about it, the escrow officer and your real estate agent cannot legally advise you on what one is best for you.  So our goal is to shine a little light on the different ways to take title in California to keep you more in the know.

Here are the five ways you can take title to your home or other type of real estate in California.

1. Sole ownership

If you are unmarried, you can own real estate in your name alone. The property will remain your sole and separate property — even if you get married later — so long as title remains in your name solely.
When a married person takes title to real property in his or her name alone in sole ownership, the spouse is usually asked to sign a quitclaim deed giving up any ownership interest in the property. When the sole owner dies, even one who is married, any property held this way may be subject to administration in probate court which is a time-consuming and expensive process. It also may result in an someone inheriting the property that was unintended.

2. Tenants in common

When two or more people buy property together, especially if they are not married to each other, they often purchase property and hold title as tenants in common. Each tenant in common owns a specified interest in the property, and it does not have to be an equal interest. The percentage of ownership for each tenant in common is specified on the deed. Each tenant in common can sell or pass their interest via their estate to whomever they wish. Thus, much like when a sole owner dies, when a tenant-in-common dies their interest in the property may be subject to probate administration.

3. Joint tenancy with right of survivorship

When two or more people buy real estate together and hold title as joint tenants with the right of survivorship, the property is owned in equal shares by the joint tenants. Upon the death of one of the joint tenants, the surviving joint tenant is the sole owner of the property.  This avoid probate for the time being but not when the surviving tenant dies.  In addition, a capital gain tax issues arises.   A step-up in basis of market value only occurs for half of the real estate (the half previously owned by the joint tenant who died).  The other half maintains its original basis (i.e. the original purchase price).  That will provide complications and capital gain tax consequences for the surviving joint tenant should they decide to later sell the property.

It is also important to note that a  joint tenant can sell or give his interest to the property to someone else without permission from the other co-owners. This action cancels the joint tenancy and creates a tenancy in common. However, if joint tenants have a “joint tenancy agreement” upon purchasing real estate then permission would be needed cancel the joint tenancy. Moreover, it’s also important to note that if three or more people are listed as joint owners, it is presumed they are tenants-in-common unless the language of joint tenants is listed on the deed.

4. Community property

Married couples and domestic partners can hold the title to real estate as community property. Each spouse then owns a 50% share in the property, and that share can be passed by each person’s will to either the surviving spouse/partner or anyone else they designate. In community property states like California, this form of ownership allows for a stepped-up basis of market value of the real estate upon the date of death of the first spouse/partner. The surviving spouse or partner can use the step-up market value of the property to avoid or reduce capital gains taxes when he or she decides to sell.

5. Trustee(s) of a Trust

Real estate can also easily be held by a trust once one has been created.  In that case title is held by the then serving trustees of the trust.  A revocable living trust is most common and usually the creators of the revocable living trust also serve as the trustees such that title includes their names as trustees. For example, if Bob and Sue Smith are married and want to put their home in their Smith Family Revocable Living Trust, they take title as “Bob Smith and Sue Smith, trustees of the Smith Family Revocable Living Trust.” A revocable living trust in California has numerous benefits such as avoiding probate, allowing for a stepped-up basis to minimize capital gains taxes, minimizing property tax ramifications, flexibility to handle life’s unexpected changes, asset protection in the transfer to later generations, and protecting real estate from liens from Medi-Cal (called “Medi-Cal estate recovery”).  Irrevocable trusts can also hold title to real estate, however the asset protection virtues, benefits, and tax implications vary depending on the type of irrevocable trust.

Because each way holding title to real property has numerous long-term legal implications, it is best to seek the advice of an experienced California estate planning attorney when making these decisions.

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Kevin Snyder is a husband, father, and an Orange County estate planning attorney and elder law attorney at Snyder Law, PC in Irvine, California. He is all about family and is passionate about educating his community about trust and estate planning, veterans issues, and how to protect what matters most – family, assets, and legacy.

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