By Robert J. Silverman, Attorney at Law
INTRO: Here’s an issue that is often shrouded in significant mystery – how to take title to your home. Hopefully I can help demystify the topic and point you in the right direction. Of course, there are many variable and subtleties, and everyone’s situation is a bit different.
OK, for starters, the heading does not refer to your job title. Rather, I’m referring to the manner in which you hold title to your home, vacation property and/or investment real estate you may own.
If you own at least one piece of real estate, and you know how you took title, I applaud your knowledge. If you hold title in an optimal (rather than a far more common) manner, I congratulate you for your wisdom!
Let’s explore alternatives and focus on the choice that is likely optimal. Of course, what is best depends on your particular facts and circumstances. Further, it may be prudent to hold title to some properties in a different manner than others.
When you were in the process of buying your property, you were probably asked by at least one person (e.g. your realtor, loan officer or escrow officer) how you wished to hold title. When asked this question, the eyes of many buyers glaze over. Often, buyers answer this question with one of their own, such as: “What are my choices?” or “What do you recommend?”
Advice about this subject from even the best, most well-intentioned real estate professionals (who are not lawyers) is incomplete, at best. In fact, they may refuse to give you any advice about this. Many standard real estate contract forms include bold warnings, such as “The manner in which you hold title has serious legal and tax consequences…” Knowing what these consequences are and obtaining legal advice about them is fairly uncommon, but useful.
Typically, unmarried buyers simply take title in their own name (e.g. “Jane Roe, an unmarried woman”). For unmarried people who are co-purchasing equal interests in a property with one or more others, the several most common ways of holding title are:
1) as “tenants-in-common” or 2) as “joint tenants”.
As a tenant-in-common, you can dispose of your interest on your death by Will to whomever you want. Alternatively, joint tenancy carries with it “the right of survivorship” (“R.O.S.”). This means that, upon your death, the entire fractional interest you owned in the property is automatically then owned equally by the remaining co-owner(s), regardless of what your Will states.
People are occasionally confused by this joint tenancy vs. Will distinction, and this confusion sometimes leads to unintended consequences. Some single people hold co-ownership interests in joint tenancy when it’s not consistent with their wishes. Perhaps they were ill-advised or their situation changed after they bought the property, and they don’t understand the ramifications.
Joint tenancy trumps a Will. Suppose John owns a property with Jane in joint tenancy, but John’s Will states that on his death, everything of his goes to Bill. On John’s death the property will not go to Bill; it will go to his joint tenant, Jane (by virtue of the R.O.S. feature).
In California, if you’re married, you have several additional choices. These include “community property”; and “community property with right of survivorship”. The vast majority of married property owners hold title in either joint tenancy or one of the community property forms. So, these methods of holding title are popular, but are they optimal? Usually not.
The R.O.S. feature tends to be highly touted because it’s very simple and straightforward when one joint tenant (spouse) dies. As I’ve explained, title immediately vests in the surviving spouse. But both joint tenancy and community property (with or without R.O.S.) have a major shortcoming for married couples. On the surviving spouse’s death, the asset will be subject to probate.
As many people have heard or read, probate – a court-supervised estate administration process – is very expensive, inconvenient, takes a long time, and is public. The alternative is to establish a Revocable Living Trust. Holding title in a living trust is almost always optimal for both unmarried and married property owners because property titled in a living trust is statutorily exempt from probate. Trust administration is typically less expensive (often dramatically so), more convenient, takes less time, and is handled privately.
So, the “bottom line” is that your title is meaningful, and should not be taken casually. If you don’t hold title to your property in a living trust, for the above reason (and many others) you should give it serious consideration.
I would be happy to email or mail you a free “Estate Planning Primer” if you contact me and request one. Among other estate planning issues, a significant portion of the primer is dedicated to the benefits of a living trust.
This article is intended to provide information of a general nature, and should not be relied upon as legal, tax, financial and/or business advice. Readers should obtain and rely upon specific advice only from their own qualified professional advisors. This communication is not intended or written to be used, for the purpose of: i) avoiding penalties under the Internal Revenue Code; or ii) promoting, marketing, or recommending to another party any matters addressed herein.
Mr. Silverman is an attorney with R. Silverman Law Group, 1855 Olympic Blvd., Suite 125, Walnut Creek, CA 94596; (925) 705-4474; firstname.lastname@example.org.
REAL ESTATE LEGAL SERVICES: Need to find a real estate attorney in Walnut Creek CA? Contact Robert Silverman at 925-705-4474 for legal advice on Real Estate Titling, Limited Liability Company (LLC) Formation, Purchase/Sale Transactions (Residential & Commercial), Commercial Leasing, Real Estate Legal Representation, Joint Ownership (aka T.I.C or Equity Share) Agreements, Buyer/Seller Disputes, and Promissory Notes & Deeds of Trust.