The Dangers of Owning Your Home as Joint Tenants
Jan 30, 2016 11:12AM
● By Danel DuRee
Do you know in what form you hold title to your home? Most people do not know, but there are important legal consequences to taking title in different ways. Holding title as joint tenants can have major negative tax consequences for a married couple.
Co-ownership of Real Estate as a Married Couple
The landscape for joint ownership of real estate is markedly more complicated than that of the sole owner. Married co-owners of real estate most commonly hold title as joint-tenants with the right of survivorship, as husband and wife as community property, or as trustees of a jointly settled revocable living trust.
Dangers of Joint-tenancy
Joint tenancy is formally known as “joint-tenancy with the right of survivorship.” The major feature of joint-tenancy is that when one owner passes away, their interest automatically passes to the surviving joint-tenant(s). Because of this characteristic, property held as joint-tenants avoids the scourge of the California probate process at the passing of the first spouse (although not the second). Holding title as husband and wife as community property also avoids probate at the passing of the first spouse. However, holding title as joint-tenants can create severe negative tax consequences for a married couple. As a married couple in California, you never want to hold title as joint-tenants.
Revocable Living Trust
The third common way of holding title to real estate, specifically as spouse co-owners, is through a jointly settled revocable living trust. The property is titled in the name of the spouses as trustees of their revocable living trust. This is the clearly preferred method from an estate planning perspective. Even if one of the other methods is initially used, eventually, the surviving spouse will need a trust to best pass the property to their heirs outside of probate and in the most tax efficient way possible. If you have questions about the negative consequences of holding title as joint-tenants or the benefits of a living trust, please call our office and we will be happy to speak with you.