Dear Kari,
My wife and I are in the process of buying a home and now we need to tell the title company how we want to hold title to our home.
My wife is always after me saying that I analyze everything to death and I drive her mad.
My loan officer put “To Be Determined at Title” on our loan application.
When we asked her about that, she really didn’t give us a clear answer on which way would be better. Do you have any advice?
Answer:
Congratulations on being married and having the means to buy a home. You have not only asked a great question that should not be taken lightly.
How you and your wife are going to hold title to the property will appear on the Deed of Trust and the Grant Deed, which are recorded documents.
The decision you make now may have significant legal and tax consequences for you in the future.
Here are some typical ways to take title in your married situation: Joint Tenancy, Tenants in Common, Tenancy by Entirety, Community Property, Sole Owner and Living Trust.
Joint Tenancy: The surviving joint tenant will receive the deceased joint tenant’s interest in the property, regardless of what that person’s will or trust says about the property.
An exception would be if both joint tenants died simultaneously, in which case their wills would control their interests regarding the asset.
Tenants in Common: In California, the co-owners own undivided interests, but unlike Joint Tenancy, these interests are not necessarily equal.
For example, three individuals could hold title jointly, with one person having 50-percent interest and each of the other two having a 25-percent interest. Each co-owner can sell, convey, or mortgage his or her interest without the consent of the co-owners.
The new owner simply becomes a Tenant in Common with the other owners. When property is held as tenants-in-common, there is no right of survivorship.
So unlike joint tenancy, the disposition of the property can be specified in the owner’s will. In this case when the survivor dies the property may then go through probate to get to the beneficiary.
Tenancy by Entirety: This is reserved exclusively for married people.
Both parties own an undivided interest in the property and upon the death of one party, the surviving party owns the entire property and no probate will be necessary. With this vesting, creditors of only one spouse cannot touch a home owned in this manner.
Community Property: This may only be used by married couples.
Similar to joint tenancy, each person owns an undivided interest in the entire property and when one spouse dies the survivor automatically receives the entire interest, thereby avoiding the cause for probate.
There is an additional benefit from a capital gain tax standpoint in that the entire property (not just the half belonging to the deceased spouse) will receive a step up in basis on death.
This creates for a double step up if the remaining spouse continues to hold the property until his or her death. The property taxes will not be reassessed on the death of the first spouse.
Sole Ownership: This is property that is owned by one spouse only.
Usually this property was one that either spouse would have owned before marriage, or was acquired by the spouse through inheritance.
Separate property is not subject to the other spouse’s creditors or debtors.
Before deciding how to hold title, learn all your options and discuss the pros and cons of your particular situation so you may move forward with the best vesting for the future.
This information is not intended for legal advice. Contact your local tax adviser and or your attorney for more information.
Kari McCoy owns the Kari McCoy Group, Residential Real Estate, at Lyon Real Estate. Call her at (916) 941-9540 or e-mail her at sold@karimccoygroup.com.
