Joint tenancy, tenancy in common, and community property ownership are three very important types of ownership to understand.  Depending on how you wish for your estate to pass at your death, the type of ownership you select can preserve or destroy much of the wealth that you can pass on to your family or whoever it is that you are wish to give your property. 

The first type of ownership is joint tenancy.  This type of ownership bypasses any trust or other estate planning document like a will but it can have negative tax consequences.  In joint tenancy you own a property with someone else. This someone else can be a spouse but it could also be anyone else. When a joint tenant dies, the other joint owner will then own the whole property (this is called right of survivorship) but the property only receives a partial step up in basis.  What this means is that if the survivor sells the property at the time of your death, your portion will be sold tax free but the other portion will be taxed as a capital gain. Depending on your survivor’s tax bracket, this can be a very serious tax consequence.

Tenancy in common is just like joint tenancy but without the right of survivorship.  What this means is that a joint tenancy property cannot be passed on in a will but a tenancy in common can.  This means that if you own a property as a tenancy in common, you should make sure that a will or trust is made to ensure that the property goes to the right place if either of you pass away unexpectedly.  

The last type of ownership in California is community property ownership.  This type of ownership is only available to a married couple. Community property can have a right of survivorship like a joint tenancy but received a full step up in tax basis.  What this means is that if a surviving spouse sells the property shortly after the other spouse dies, the property can be sold free of any capital gains tax.

Generally, we recommend that married couples hold property as community property and not as a joint tenancy.  We also generally recommend that anyone who holds property as a joint tenancy seriously consider if they would rather hold it as a tenancy in common so that they can give the property to whoever they want at death rather than having to give it to the joint tenant due to the right of survivorship.

Generally you will want any real estate deeds that you make to be “quitclaim” deeds.  What this means is that you are transferring it for your own purposes but you are not making a warranty to any future buyers.  Most people will want to use warranty deeds that provide a guarantee of title only when a property is purchased or when a title insurance company is involved.

We can help you get started with your estate plan.  Whether you only want a joint tenancy deed or whether you want a full estate plan with a trust and trust transfer deed, we can get started right away.  Depending on your location, we can even file the deed for you in the County Recorder’s office. At South Coast Estate Plans, we pride ourselves on fast quality service at competitive prices.