Forms of Title

There are five different ways to hold title to real property in California when there is more than one owner. Each form of title has different tax and other consequences for the property owners.

1. Tenancy In Common

   1. This is the most common form of ownership. If you don’t specify a different form, your title is as a tenant in common.
   2. Tenants in common can own unequal shares of the property.
   3. Title does not pass to the co-owners on your death. That means you can direct in your will or trust who will receive your property on your death.

   Disputes among co-owners are happening more often because of the current financial crisis. For example, if one co-owner wants to sell and the other doesn’t, or if one co-owner has lost his job and cannot pay his share of the property expenses.

   Unless you have a written agreement that says otherwise, each co-owner has a right to demand a sale of the entire property – and can enforce that right by a lawsuit for partition. The court will order the sale of the property and may appoint a referee to take control of the property pending a sale.

   If you don’t have a written co-ownership agreement with your co-owners, you should get one – before a dispute arises – to avoid becoming embroiled in very costly court proceedings.

2. Joint Tenancy

   1. A joint tenancy ownership must be specified in the Grant Deed.
   2. A joint tenancy includes the right of survivorship so that on your death, your interest in the property passes to the surviving owners – no matter what your will says.
   3. All joint tenants are presumed to have equal ownership interests. [So if you put another person on title to your property with the intent that they will receive your interest if you die – be aware that they can claim a 50% interest now.]

   Any joint tenant can sever the joint tenancy without notice to the other joint tenants at any time. (Title then becomes tenancy in common.)

   Tax Basis

   When a joint tenant dies, the surviving joint tenants receive the deceased joint tenant’s interest with a stepped up basis – as if they just paid full market value for that interest – which may save them from having to pay capital gains taxes on the sale of that interest. But only the basis for the deceased joint tenant’s share is stepped up. So if there are two joint tenants and one dies – the survivor gets a stepped up basis on HALF.

3. Community Property

   Married couples can hold title as community property. They have the option to hold title “with rights of survivorship” or not.

   1. Tax Basis

      If a married person holds title as community property, the surviving spouse gets a 100% stepped up basis for tax purposes. That means the surviving spouse can sell the property and incur no capital gains tax liability.
   2. If a married person holds title as community property with rights of survivorship, then title to the property will pass to the surviving spouse when the first spouse dies – without any probate or trust proceedings.
   3. Community property without rights of survivorship. If the deed does not include the right of survivorship – then the property may still pass to the surviving spouse through a probate proceeding or trust. A surviving spouse can file a Spousal Property Petition to obtain title to community property – but this takes 4 -6 weeks and costs a few thousand dollars in legal and court fees.

4. Partnership

   Co-owners engaged in business can hold title to their property in the partnership name. The partnership holds title and the individuals own an interest in the partnership. Partnership interests are transferred by assignment.

   It is critical to have a written partnership agreement because the partners need an EXIT STRATEGY to determine what happens if a partner dies, retires, of leaves the partnership.

5. Trust Ownership

   Co-owners who want to direct the disposition of the property on their death, can create a revocable trust and transfer their interest in the property to themselves as trustee. When the co-owner/trustee dies, the successor trustee is able to sell the property and distribute the proceeds – or distribute the property itself – to the beneficiaries of the trust without the delay and expense of probate proceedings.

   You then hold title as trustee and, when you die, your successor trustee is able to sell the property and distribute the proceeds – or distribute the property itself – to the beneficiaries of your trust.

   The trust title is a layer over the underlying form of title. So you can hold community property in trust or tenancy in common property in trust.

Title Transfers.

Property owners transfer title for many different reasons. Such title transfers have legal and tax consequences. The Law Office of Michele McGill assists individuals with title transfers and explains the forms of title available and the consequences of each. It is much too important to do it wrong. The Law Office of Michele L. McGill has been assisting property owners with title issues since 1982 and would be happy to assist you.