We are often asked “How should we hold title?” It seems like it should be an easy question to answer, but it definitely is not. Since real estate is usually the most valuable of our assets, the way people take ownership of their property can be very important. We are not attorneys and we are not intending to give legal advice, but thought that a broad brush explanation of the more common forms of California residential ownership might be of interest.
The way you hold title can have an impact on income taxes, inheritance taxes, gift taxes, transferability of title, and exposure to creditors. How you hold title can also have probate implications. The best form of ownership depends on your individual circumstances.
Joint tenancy exists when two or more people are equal owners with undivided interest in a property. The main characteristic of joint tenancy is the right of survivorship. When a joint tenant dies, their interest in the property goes to the surviving partner(s) in the property.
Tenancy in common involves two or more individuals sharing interests in a property. The interests do not have to be equal. There is no right of survivorship. The other partners do not necessarily have any claim to a decedent’s share. If one partner dies they can leave their interest in the property to anyone they choose.
Community property is a very popular form of holding title in California. Holding title as community property is for married couples or domestic partners. When one partner dies, the other partner automatically inherits the decedent’s interest. Some married couples do have separate property that is not part of their community property. These are usually properties that were owned or inherited prior to the marriage.
Community property with right of survivorship is also a form of vesting title by spouses or domestic partners. It has the same advantages of community property ownership, but adds the benefit of the right of survivorship.
Revocable Living Trusts have gained popularity in recent years. This is mainly because a living trust does not have to go through probate after an individual passes away. Probate court can be costly and take a long time to be settled. With a trust assets can be passed on to the beneficiaries without being held up in probate court. There are costs associated with setting up a trust that other forms of ownership do not have
Other ways of vesting title that are regularly used are Family Limited Partnerships (FLP) and Limited Liability Companies (LLC). There are several other forms of vesting title, but these are the most common forms of ownership. All property owners should discuss how they hold title very carefully with their attorney or tax professional.
This article was originally written for and appears in the San Francisco Examiner. Eric Ruxton and Larry Aikins are the owners of Terrace Realty Inc. and Terrace Associates Inc., in Redwood City. Terrace has been in business for 60 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.