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How Should I Hold Title to My Real Property?

By February 24, 2017March 20th, 2017No Comments

By Staci Yamashita-Iida, Esq.

For the past few months, my fiancé and I have spent our weekends house hunting. When we got particularly close to buying a home a couple of weeks ago, our escrow officer asked us, “Have you two thought about how you’d like to take title to the property?”

In our careers as a CPA and an attorney, my fiancé and I have become familiar with the basics of real property law. As we discussed the escrow officer’s question, I realized that, if not for our professions, we would be clueless on the subject.

In the overall context of purchasing a home, the manner in which you take title seems like such a minor, trivial detail. Yet, the truth is that it can significantly affect your rights as an owner during your lifetime and upon your death.

The best way to hold title in your real property depends on your situation. This article provides an overview of the five most common ways to take title and discusses the pros and cons of each.

Sole Ownership

Sole ownership usually presents itself in one of two ways. First, it occurs for single, divorced or widowed individuals. So, if Ben Bachelor wants to purchase an apartment, he would take title as “Ben Bachelor, a single man.”

Second, sole ownership applies for married individuals or domestic partners who want to take title in his or her own name alone. For example, if Wanda Wife inherits her mother’s home and it was her mother’s wish that the property remain in the family, then Wanda would take title as “Wanda Wife, a married woman as her sole and separate property.” Wanda’s husband would likely sign paperwork to disclaim his right, title and interest to the property, thus confirming that both spouses intended the property to be Wanda’s alone.

Tenants in Common

When two or more people take title to a property — especially if they are not married to each other — they often become tenants in common. This typically occurs when siblings, friends or real estate investors purchase property together.

The main advantage to being a tenant in common is that the co-owners do not have to own equal shares of the property. For example, Sister Yamamoto can own 65 percent and Brother Yamamoto can own 35 percent. Since Brother Yamamoto owns an undivided share, he has the flexibility to sell or transfer his interest to whomever he wants.

The ability to freely assign one’s interest, however, can also be a disadvantage. In the scenario above, let’s say Brother Yamamoto gets very sick and decides to transfer his 35 percent interest in the property to his girlfriend, Crazy Carla, before he dies. As a result, Sister Yamamoto winds up co-owning the property with Crazy Carla, a virtual stranger whom she never really got along with.

Another drawback to tenancy in common is that there is no “right of survivorship,” a concept I’ll discuss below. In short, if a tenant in common dies, then his or her interest will be subject to probate.

Joint Tenancy

Joint tenancy occurs when two or more people (spouses, family members, friends, etc.) want to own an equal share of the property — e.g., Sister Yamamoto and Brother Yamamoto each own 50 percent.

The No. 1 benefit to joint tenancy is that it offers right of survivorship. This means that upon Sister Yamamoto’s death, Brother Yamamoto automatically absorbs her share, thus owning 100 percent of the property. The right of survivorship is extremely beneficial because it allows property to be conveyed to the other joint tenant(s) without having to go through probate — a lengthy, expensive legal process.

A restriction to joint tenancy, however, is that all joint tenants must acquire title at the same time. So, let’s say Sister Yamamoto and Brother Yamamoto bought a property as joint tenants in 2012. Five years later, Sister Yamamoto decides to transfer her 50 percent interest to her daughter. Since her daughter and Brother Yamamoto did not acquire the title at the same time (Brother Yamamoto acquired title in 2012; daughter acquired title in 2017), joint tenancy is broken. If a joint tenant decides to transfer his or her share, then title automatically reverts to tenants in common.

For married couples, joint tenancy bears an additional disadvantage. Valuable tax benefits are missed out on by choosing joint tenancy over community property with right of survivorship, a concept discussed below.

Community Property With Right of Survivorship

In community property states (such as California), married couples and domestic partners have the opportunity to take title as community property with right of survivorship (CPWROS). CPWROS shares many of the characteristics of joint tenancy (equal ownership and right of survivorship) — the added bonus is that there may be several tax benefits that only CPWROS offers.

Trustee of a Trust

One of the fundamental reasons to create a living trust is to prevent your assets from being probated. To obtain maximum benefit, confirm that your real property is owned by the trust (and managed by the trustee).

For example, title would be held as “Pete Purchaser, as Trustee of The Pete Purchaser Revocable Living Trust.”

Holding title in the name of the trust encompasses many of the advantages already discussed: probate avoidance, freedom to transfer to any person or party upon death and increased tax benefits. All that’s required is the establishment of a living trust and its proper funding.

How you hold title can have lasting effects on you, your family and the co-owners of the property. To fully understand and plan for all of the ramifications associated with your particular situation — property tax reassessment, capital gains tax minimization, avoidance of probate and estate taxes — consult with a qualified California attorney.

Staci Yamashita-Iida, Esq., is an Estate Planning attorney at Elder Law Services of California. She can be contacted at (310) 348-2995. The opinions expressed in this article are the author’s own and do not necessarily reflect the view of the Pacific Citizen or JACL. The information presented does not constitute legal advice and should not be treated as such.