Can Two People Own a Home in California Without a Trust?

How a California home is owned determines how it will transfer on the death of the owner. This post explores the options and the hazards for two home owners who do not want a trust.

How real property is owned determines how it transfers on the death. Transfer is either in or out of probate court. Probate is a set of California laws that determine who inherits and how. Probate requires a filing in court and an order from the court on who inherits. Probate is time consuming, expensive and a matter of public record.

Real property owned by two or more individuals in name only are called “tenants-in-common.” A tenant-in-common owner requires transfer in probate court. The surviving co-owner may not be the heir and may have a new co-owner.

Co-owners can avoid probate on the death of the first owner with the magic words “as joint tenants.” Joint tenants have the “right of survivorship.” A surviving joint tenant owner inherits the deceased owner’s interest without probate court. If the phrase “as joint tenants” is missing the default is as tenants-in-common and transfer is in probate court.

Another of form of joint tenancy ownership in California is “as community property with the right of survivorship.” This right of survivorship is for married couples only. In addition to the right of survivorship, this phrase allows on the death of the first spouse, a full step-up in the basis of the real property to fair market value. Full step-up in basis may provide a reduction in capital gains tax on the subsequent sale of the real property.

Many states allow the right of survivorship with the phrase “as husband and wife.” This is not true in California. In California, the phrase “as husband and wife” does not provide the right of survivorship. The surviving spouse requires a court order from the probate court to inherit.

Real property owned by two or more individuals in name only are called “tenants-in-common.” A tenant-in-common owner requires transfer in probate court to his or her heirs. Co-owners can avoid probate on the death of the first owner with the magic words “as joint tenants.” Joint tenants have the “right of survivorship.” The survivor inherits from the deceased owner.

What is Best, a Trust or Corporation as a Home Owner?

How a California home is owned determines how it will transfer on the death of the owner. This post explores the options and the hazards of trusts and corporations.

In the process of purchasing real property in California, the buyer is asked “how do you want to own your home?” This post explores the options of a trust or a business entity.

Both options avoid probate court transfer on death. Probate is a set of California laws that determine who inherits and how. Probate requires a filing in court and an order from the court on who inherits. Probate is time consuming, expensive and a matter of public record.

Real property owned by a business entity such as a limited liability company or corporation avoids the probate courts.  A business entity not only avoids probate, it can protect the owner from renters.

A business entity also has tax advantages if it has rental profits. A business entity owner is for rental property, not personal homes. Business entities in California are costly and for personal homes have tax disadvantages.

The best way to own a personal home in California is as trustee of a trust. Trusts are similar to wills. A trust states who inherits and under what conditions. A major advantage of a trust compared to a will is a trust avoids probate. A will does not avoid probate. But for a trust to avoid probate, the real property must be owned by the trust. Real property transfers into a trust are by deed recorded with the county where the real property is located.

On the death of owner of a trust, transfer is by affidavit death of trustee and deed recorded with the county recorder. The affidavit establishes the successor trustee identified in the trust as the person authorized to act on behalf of the trust. The successor trustee then sells or transfers the real property to the beneficiaries of the trust by deed.

Real property owned in a name only transfers on death through probate court. A business entity owner is best for rental properties. Business entities avoid probate, provide asset protection and have tax advantages. Trusts are best for personal homes to avoid probate and take advantage of tax breaks.

Surprise and Peril Await When Adding a Co-owner of Real Property in California  

A sole owner of real property in California often avoids probate by adding a co-owner in joint tenancy. This post by Mark W. Bidwell identifies the surprises and perils of joint tenancy.

This post by Mark W. Bidwell identifies the perils and surprises of joint tenant owners. Adding a co-owner opens up the possibilities of many unintended consequences. Unintended consequences are: unfavorable tax treatment; exposure to the new owner’s creditors; relinquished control to sell and mortgage the real property; and failure to transfer due to an unplanned order of death.

Joint tenancy is a form of co-ownership of real property where more than one person owns the real property and each owner has equal ownership. Joint tenancy has the "right of survivorship." On the death of one joint tenant, the deceased joint tenant's share of the asset transfers to the surviving joint tenant or tenants at the moment of death without the need for probate administration.Joint tenancy overrules wills and trusts. This straightforward change of ownership is fairly easy to understand and is low in cost.

But surprises await. The first is unfavorable tax treatment. The new joint tenant’s ownership interest is increased to fair market value for the property tax base. There are two exceptions to this rule; adding a spouse or adding a child who lives with the parent.

The next surprise is an increase in capital gains tax. Lifetime gifts of real property transfer the original owner’s purchase price or “basis” to the new co-owner. Death transfers of real property receive an adjusted basis to fair market value as of date of death. For lifetime transfers of real property with a low purchase price compared to a higher current market value, the result is an additional capital gains tax on the subsequent sale of the real property.

The third surprise is the new co-owner. The new co-owner’s creditors can use the real property as a source of repayment. Additionally, the new co-owner must sign off on any sale or financing. The sole owner gives up control to the new co-owner.

The final surprise is an unplanned order of death. If the new owner dies before the current, then purpose of adding a new owner is defeated. Also, at some point, the surviving joint tenant will die, and the real property has to be transferred using the probate court.

Adding a co-owner opens up the possibilities of many unintended consequences. These are: unfavorable tax treatment; exposure to the new owner’s creditors; relinquished control to sell and mortgage the real property; and failure to transfer due to an unplanned order of death.