Los Angeles Trust & Probate Attorney
We Offer Virtual Consultations
How to take title to Property

How to Take Title to Real Property – common forms of title explained

In estate planning, it is a very common question to ask:

“When I buy a house, how should I take title?”

There is a common misconception that realtors/escrow are required to give your legal advice – the opposite is true: they are prohibited from giving legal advice, and it falls on you as the buyer to do your own research and choose the form of title that best fits your situation, then tell Escrow to title your property accordingly.

This article explains in plain English the differences between the more common forms of title to hopefully facilitate your deciding between them.

Community Property

  • Ownership Rights: This title is suitable for a married couple - husband and wife or domestic partners, and it implies equal interests – both parties have equal rights to possession of the property and must sign together any documents related to its transfer/sale, etc.
  • Creditors of both parties may go after property that is held as “community property.”
  • On death of one party, the survivor generally has to file a Spousal Property Petition with the Court to inherit the deceased spouse’s one half of the community property.
  • Cost Basis Adjustment. The entire property gets a step up in cost basis on the death of one party.
  • Property Taxes. The property taxes will not be reassessed at the death of one spouse, provided that certain documents are filed with the County Assessor within a specific deadline (150 days after death in Los Angeles County).

Individuals who are not married or in domestic partnership cannot take title as Community Property. If such title is listed in error on a Deed of parents or unrelated parties, it is regarded as Tenancy in Common (see below).

Community Property With Right of Survivorship

  • Ownership Rights: This type of title is very similar to the community property title except that it adds the automatic “right of survivorship” and the surviving party does not have to clear title by going to court. Short of owning property in Trust, this is the best way a married couple can take title to real property. Both parties have equal rights to possession of the property and must sign together all property-related documents (such as deeds, refinance documents, etc.).
  • Creditors: community property is liable for the debts of either and both spouses.
  • On death – the surviving party is automatically entitled to right of survivorship and can clear title by simply recording an Affidavit with the County Recorder’s office where the property is located – no legal process needed.
  • Cost Basis Adjustment. The entire property gets a step up in cost basis on the death of one party.
  • Property Taxes. The property taxes will not be reassessed at the death of one spouse, provided that certain documents are filed with the County Assessor within a specific deadline (150 days after death in Los Angeles County).

Joint Tenancy

  • Ownership Rights: This form of title can be used for any number of people including married couples, domestic partners, siblings and completely unrelated parties. The ownership is joint – there is an equal right of possession: if there are three joint tenants, each owns 33.33% interest in the property.
  • Creditors: creditors of either joint tenant may file a lien against the entire property – thus affecting the title for the other joint tenants.
  • Conveyance: each party may sign a Deed “severing” their joint tenancy and conveying their interest in their individual name, which converts their interest into a “tenancy in common.”
  • On death, the deceased joint tenant’s interest “disappears” and is automatically redistributed in equal shares among the surviving joint tenants.
  • Notably: the decedent’s interest DOES NOT go to their next of kin, and is not subject to distribution via Trust, Will – i.e. the joint tenant does not have ‘testamentary rights’ over their joint tenancy interest; it is automatically inherited by the surviving joint tenants in equal shares. The last survivor owns the entire property outright.
  • Cost Basis Adjustment. Only the decedent’s portion in the joint tenancy receives a step up in cost basis – the surviving joint tenants’ interests do not. This is critical to know when calculating capital gains taxes upon sale by the survivors. Because there is no double step-up in cost basis on joint tenancy, this is NOT a preferred form of title for a married couple to own property.
  • A married couple’s recommended form of title (short of a living trust which also avoids probate if both spouses die), is Husband and Wife, as Community Property with Right of Survivorship.
  • Property Taxes. The property taxes may be reassessed depending on how the joint tenants are related to each other, and whether certain joint tenant is an “original transferee” or a person “other than an original transferee” as defined by the Revenue and Taxation Code of California.

Although this is a popular form of title to avoid probate, its complex capital gains tax and property tax nuances should be carefully considered before choosing Joint Tenancy as a title to your property, or before adding a person as a Joint Tenant to property.

A Trust cannot hold title as a joint tenant. Only humans can be joint tenants, due to the “right of survivorship.” Since a trust never “dies,” it cannot be a joint tenant. Trusts can own title with other trusts or with humans as Tenants in Common only.

Tenancy In Common

  • Ownership Rights: Unlike the previously discussed forms of title, Tenancy in Common (“T/C”) conveys distinctly separate ownership interests. Each Tenant in Common has an unrestricted right to transfer their interest in the property – including via Will or Trust.
  • Also, unlike the previously-discussed forms of title, Tenancy in Common allows UNEQUAL interests to be taken in property (for ex., ¼ undivided interest, or 73% undivided interest, or 1% interest, etc.).
  • Right of possession of each Tenant in Common is in the entire property, however, each owner is responsible only for their proportionate share of the costs (property taxes, maintenance, etc.).
  • Creditors: Each Tenancy in Common Interest is liable to the creditors of the respective owner. Of course, when creditors place a lien on title due to one T/C debts, that affects title for all tenants in common.
  • Cost Basis Adjustment. Each separate T/C interest gets its own step up in cost basis on the death of the respective owner. The remaining tenants in common retain their initial cost basis in the property.
  • Property Taxes. The property taxes may or may not be reassessed at the death of an owner depending on the length of the co-tenancy, the relationship between the parties and other factors detailed by the County Assessor.
  • No Probate Avoidance: tenancy in common does NOT have a “right of survivorship” and very often, a deceased Tenant in Common’s interest that was not held in trust requires probate administration of their respective fractional interest, which affects the remaining tenants in common as they are “dragged through court.” As such, it is recommended that tenants in common set up own living trusts, and hold title to their interests in Trust instead of in their individual name.
  • Trusts CAN co-own with other trusts or with other individuals as Tenants in Common.
  • This title is NOT the preferred way for a married couple to own property.
  • Notably - a mere listing of the owners’ names on a Deed (for ex, Mary Smith and John Peterson) without any further wording (without stating if they are “joint tenants”, “husband and wife,” “tenants in common,” etc.) automatically implies that the parties are Tenants in Common.

Revocable Living Trusts

  • Ownership: Owning property in Trust avoids Probate upon the death of the trust creators (Settlors), and prescribes the manner of distribution of the property. Property can be owned in trust by spouses or by single or unmarried individuals. Generally the present (not future/residual) beneficiaries of the Trust enjoy possession of the entire property, but it is the Trust that is the owner, and its Trustee(s) are responsible for payment of expenses (property taxes, assessments, maintenance, etc).
  • Creditors: Revocable living trusts in California DO NOT provide creditor protection. The settlor(s) of the trust remain liable to their creditors, despite their property being owned in trust. The main purpose of revocable living trusts is to avoid probate, and to prescribe precisely how the property is to be distributed without court interference by the named (desired) successor Trustee, who will enforce the terms of the trust.
  • Income Taxes and Cost Basis Adjustment: The IRS treats a grantor trust (a revocable living trust) as the same taxpayer as its creators (Settlors). The Settlors’ SSNs are used as the Tax ID for a revocable trust. As such, there is no change in income taxation when property is owned/titled in a revocable living trust. Upon the death of the trust settlor(s) however, a revocable trust becomes IRRevocable, and it requires its own tax ID. At such time all trust property receives a step up in cost basis.
  • Property Taxes. There is an exclusion from reassessment of the property taxes when owners transfer ownership from themselves to a trust settled by them. A Preliminary Change in Ownership Report needs to be filed with the County Assessor to avoid reassessment of property taxes when transferring real property in Trust for the benefit of the transferors or a transferor’s spouse.

Owning property in Trust provides so many benefits, including probate avoidance and avoiding guardianships where minor children are the ultimate beneficiaries of a trust. Trusts also offer a number of asset protections – but not for the Settlor(s); the asset protections extend to the residual beneficiaries of the Trust (often, the Settlors’ children or other relatives).

In conclusion - On a Deed, Every Word Counts.

Taking title to real property is a very serious decision with really important income, capital gains and gift tax consequences. When title is taken incorrectly and then you want to add another person on title, this may lead to expensive and undesirable results – such as having to file a gift tax return or it may trigger property tax reassessment.

If you are unsure how to take title – consult with a legal professional. We offer a 45 min consultation and can further answer your specific questions BEFORE you take ownership/title to property.

We invite you to check our CALENDAR availability to schedule a day/time to speak with the attorney about your specific circumstances and plans for the property.

Categories