New Form of Holding Title
Avoids Probate and Minimizes Taxes
The Castleman Law
Firm
A Professional Corporation
5870 Stoneridge Mall Road, Suite 207
Pleasanton, CA
94588
(925) 463-2221
Fax: (925) 463-0328
Effective July 1, 2001, married couples in California will be permitted to take title to real property "as community property with right of survivorship". This new way of holding title is a cross between "community property" and "joint tenancy with right of survivorship" and has the advantages of both.
Couples holding title in community property get the advantage of stepped up basis. What this means is that at the death of the first spouse, the basis or investment in the property for capital gains purposes is deemed to be the value of the property as of the date of death of the first spouse. Thus, if the surviving spouse sells the property shortly after the death of the first spouse, there is little or no capital gain. The disadvantage of the community property form of ownership is that it requires at least one court hearing to transfer property held in community property, and often involves a more extended probate or trust administration.
Couples holding in joint tenancy can easily transfer the interest of the deceased spouse without probate or other administration. At the death of the first spouse, the surviving spouse records an affidavit of death of joint tenant and no further action is necessary. The disadvantage of a joint tenancy is that the basis for capital gains purposes is stepped up or adjusted on only half of the property. Thus, if the survivor sells shortly after the death of the first spouse, he or she will have capital gain on half of the property. This gain will be based on the difference between the original price (or basis) of the half interest and the value as of the date of sale.
The new form of holding title has the advantages of both of the older forms. At the death of the first spouse, the basis is adjusted on both halves of the property as of date of death, and the surviving spouse can transfer the deceased spouse's interest by recording an affidavit of death of spouse.
A married couple can change the way they hold title after July l by executing and recording a new deed from themselves to themselves. Since every couple's tax situation is unique, it is strongly recommended that any couple contemplating a change in title consult with their tax and/or legal advisors before making the change in title.
© 2001 By Barbara J. Savery, Attorney at Law