WAYS TO HOLD TITLE TO REAL PROPERTY
to real property in California may be held by an individual in SOLE
OWNERSHIP or by individuals in CO-OWNERSHIP in any of a
number of different ways. The following is a brief summary of some
of the common ways that real property may be held. For more information,
please consult your attorney or accountant. There may be legal and
tax consequences to the vesting that you select.
ownership is ownership by one individual, corporation or another entity
capable of acquiring title. The discussion in this paragraph will
be limited to the ways in which one individual may hold title.
A SINGLE MAN/WOMAN: A man or woman who has not been legally married.
e.g. Bruce Buyer, a single man.
AN UNMARRIED MAN/WOMAN: A man or woman, who was previously married
and is now legally divorced. e.g. Sally Seller, an unmarried woman.
A MARRIED MAN/WOMAN, AS HIS/HER SOLE AND SEPARATE PROPERTY: A
married man or woman who wishes to acquire title in his or her name
alone. The spouse must consent, by quitclaim deed or otherwise, thereby
relinquishing all right, title and interest in the property. e.g.
Bruce Buyer, a married man, as his sole and separate property.
or ownership by two or more persons can be acquired in any one of
the following forms:
JOINT TENANCY: Is ownership by two or more persons in equal interest
subject to the right of survivorship in the surviving co-owner. Title
must have been acquired at the same time by the same conveyance. When
a joint tenant dies, title to the property is automatically conveyed
by operation of law to the surviving joint tenant(s). Therefore, joint
tenancy property is not subject to disposition by will. i.e. Bruce
Buyer and Barbara Buyer, husband and wife as joint tenants.
Many married persons have acquired and continue to hold property as
Joint Tenants with their spouses in an effort to avoid probate. While
Joint Tenancy does not avoid probate, it does not assure the spouses
that that the survivor will receive a double stepped-up basis for
capital gains purposes. Instead, when a person who holds title with
his or her spouse in a form other than Community Property dies, the
survivor is assured only of a step-up in the value of one-half of
the property. It is often possible, after the death of one spouse,
to obtain a court order determining that the property was actually
Property even though title was held as Joint Tenants, in an effort
to obtain a step-up in basis of the entire property (i.e., double
stepped-up basis). However, this result is not assured and the Internal
Revenue Service has sometimes successfully challenged these after-death
attempts at estate planning.
TENANCY IN COMMON: Is ownership by any two or more individuals
in undivided fractional interests which may be unequal in quantity
or duration and may arise at different times. Each tenant in common
owns a share of the property and is entitled to a comparable portion
of the income and must bear the equivalent share of expenses. Each
co-tenant may sell, lease or will to his/her heir that share of the
property belonging to him/her. i.e. Bruce Buyer, a single man, as
an undivided 3/4ths interest and Penny Purchaser, a single woman,
as to an undivided 1/4 interest, as tenants in common.
COMMUNITY PROPERTY: Is ownership by husband and wife acquired
during their marriage which they intend to own together, as differentiated
from separate property which is property acquired before marriage
by separate gift or bequest or which is agreed to be owned only by
one spouse. In California real property conveyed to a married man
or woman is presumed to be community property, unless otherwise stated.
Since all such property is owned equally, husband and wife must sign
all agreements and documents of transfer. Under community property,
either spouse has the right to dispose of one half of the community
property. If a spouse exercises his/her right to dispose of a one
half interest in the community property by will, that half is subject
to administration in the estate. e.g. Bruce Buyer and Barbara Buyer,
husband and wife as community property.
California has enacted a brand new form of property ownership - "Community
Property with Right of Survivorship." This new form of ownership
will become available July 1, 2001. Community Property with Right
of Survivorship combines the tax benefits of Community Property and
the survivorship aspects of Joint Tenancy.
Until now, the only forms of ownership by two or more persons recognized
in California have been Joint Tenancy, Tenancy in Common, Partnership,
and Community Property [without right of survivorship]. Both the traditional
Community Property and the new Community Property with Right of Survivorship
can be used only between husband and wife. (California law does not
recognize common law marriage, unless the common law marriage occured
in a state other than California that recognized the establishment
of common law marriage.)
Other States. With this new law, California joins the majority
of the states that recognize Community Property by providing for this
optional form of ownership. The overwhelming majority of states do
not recognize Community Property in any form. Keep in mind that the
specifics of all forms of ownership - and their implications - differ
substantially from state to state. The issues discussed in this memo
are relevant only for California residents.
Basis. The new form of ownership carries the benefit of assuring
spouses who hold title in this form that the survivor spouse will
have the benefit of a "double stepped-up basis" for capital
gains (income tax) purposes when the surviving spouse eventually sells
the property. This means that the entire increase in value from the
date the property is acquired by the spouses to the date the first
spouse dies escapes capital gains taxation. Double stepped-up basis
is available only in the eight community property states, for property
held as Community Property (including Community Property assets that
are held in a trust).
of Will. Another effect of holding title as Community Property
with Right of Survivorship is that the ownership will not generally
be affected by the first spouse's will, even if the will leaves the
deceased spouse's interest in the property to someone other than the
surviving spouse. This is the same as with Joint Tenancy - i.e., the
deceased spouse's will does not interfere with survivorship even if
the will would otherwise leave the deceased spouse's interest to someone
else. (With traditional Community Property, the deceased spouse's
will generally is effective to leave the decedent's one-half interest
in the property to someone else, but does not effect the one-half
interest owned by the surviving spouse.)
Survivorship. Even if the property is held as Community Property
with Right of Survivorship, it is possible for either spouse, during
the spouse's joint lifetime, to terminate the survivorship character
of the ownership by executing and delivering an appropriate instrument.
The same is true for property held in Joint Tenancy, whether by spouses
should not decide lightly how to hold title. Each choice in taking
title or in making changes in property you already own has both positive
and negative impications. The right choice depends on a number of
issues including marital status, whether a change in marital status
(marriage or divorce) is contemplated, and other factors. You should
consult an appropriate professional to make the right choices for