Many times in our Estate Planning practice, we get asked, how should we hold title to our real estate? Or sometimes the client states, “I have my real estate held jointly with my spouse, thus I do not need a living trust.” The following five variations of legal title are broken down. However, one form of legal title is far superior than all – Holding title to your real estate in California, in the name of your living trust.
- Living Trust
Holding title of your real estate in a Living Revocable Trust is the safest and most efficient means of holding title. By doing so, you avoid the pitfalls of the probate process, you get to nominate beneficiaries of your trust for when you are no more. Thus, allowing your property to be inherited by the people of your choice when you are no more and not letting the State of California decide who your beneficiaries are.
2. Sole Ownership
If you are single, one way to hold title to your home is in your name alone. 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. This might be done, for example, when a husband invests in properties but his wife is not involved with the realty investments or for loan purposes. There are no special tax or other advantages of holding title in sole ownership. When the sole owner dies, any property held this way is subject to probate court costs and delays. Thus, holding title in a Living Trust is far superior.
3. Tenants In Common
When two or more co-owners take title to real estate, they often become tenants in common. Each tenant in common owns a specified interest in the property. For example, one owner might own a 50% interest, another could own a 10% interest and a third tenant in common could own a 40% share. The percentage ownership is specified on the deed. Tenancy in common property is subject to probate court costs and delays. A disadvantage is that the remaining tenant in common could wind up co-owning property with a stranger. Thus, holding title of your percentage in a Living Trust is far superior.
4. Joint Tenancy with Right of Survivorship
When title is held in joint tenancy with right of survivorship, all co-owners own equal shares and the surviving co-owner winds up owning the entire property. After a joint tenant dies, the surviving joint tenant(s) receives the deceased’s share. A major advantage is that probate costs and delays are avoided when a joint tenant dies, however probate cannot be avoided when all joint tenants are no more. The surviving joint tenant(s) usually needs only record an affidavit of survivorship and a certified copy of the death certificate to clear the title. A major disadvantage is that a joint tenant can sell or give his property interest to a new owner without permission of the other joint tenant(s). If there are only two joint tenants, the joint tenancy is ended by such a conveyance, creating a tenancy in common. Thus leaving open the possibility of probate court costs and delays when the last joint tenant passes. Thus, holding title in a Living Trust is far superior.
5. Community Property
Husbands and wives who acquire realty in the community property states of California can take title as community property. Each spouse then owns half the property. A special advantage is that community property assets inherited by surviving spouse receive a new stepped-up basis at market value on the date of death. In 1987, the IRS extended this community property stepped-up basis advantage to husbands and wives holding joint tenancy titles in community property states. To qualify, IRS Revenue Ruling 87-98 requires spouses to acknowledge in writing to each other that their joint tenancy property is also community property. However, when both spouses are no more, the property is subject to probate court costs and delays. Thus, holding title in a Living Trust is far superior.