Holding your real estate title as joint tenants has certain legal implications if you live in California. If you die, divorce or otherwise separate from the person who holds title with you, then the portion of ownership and tax basis for the one remaining may change and cause unexpected ramifications.
Definition
There are many ways to hold the title of your real estate property, such as joint tenants, tenancy in common or community property. A designation of joint tenants means that both persons on the title each own the property 100 percent, and, if one dies, the other automatically inherits the portion owned by the deceased. California is a community property state, which means that assets acquired during marriage are considered to be equally owned by both spouses, regardless of the joint tenancy designation.
Beneficiaries
Under California law, a decedent's property must enter probate in Superior Court before division. However, property held as joint tenants is not necessary for probate and the other person on the title automatically becomes the owner. Be aware that, in California, income tax implications may apply for the survivor. If both people on the joint title die, the beneficiaries of the real estate will have to wait for the completion of probate to take possession, if the estate is worth $100,000 or more.
Divorce
Joint tenancy on a title supersedes the California community property law. Therefore, if you die in the middle of divorce proceedings, before the marriage is legally dissolved, then your spouse will automatically inherit real estate that is held as joint tenants, regardless of the divorce negotiations thus far. However, if the divorce decree grants the property to your spouse, you must remove your name as joint tenant. One way to accomplish this is to quitclaim your interest in the property to your ex-spouse. However, your mortgage obligation will remain, so your ex will need to refinance or obtain a new loan.
Options
An alternative to California probate law for your beneficiaries is to set up a living revocable trust with the property owners at the trustees. When both trustees die, the beneficiaries inherit the assets held in the trust. Also, a trust may reduce federal income tax on the estate. Alternatively, California allows for title to be held as "community property," which is different than the community property rule in California marriages. Community property means that each spouse owns 50 percent of the real estate, and the right to survivorship on the title automatically grants a surviving spouse the decedent's portion. This option may decrease the income tax burden as a result of the inheritance.
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