Hi, I’m Alan Khalfin, managing partner at Vaksman Khalfin. Today, I wanted to talk to you about how to take title to your property.
One of the most common questions we get from clients, is how should they take title to their property. Everybody’s always super excited to acquire a new property and oftentimes they overlook the importance of how they’re holding title. This is a very important decision that you should make very wisely. For married couples, there are four different ways of taking title.
- First, would be tenancy in common.
- Second, would be joint tenancy.
- Third, would be community property with right of survivorship.
- Fourth, would be a revocable living trust.
Let’s go through these options one at a time. The first option is tenancy in common. Tenancy in common is not a great way to hold title to your property because it results in a probate after the first spouse passes away. With the tenancy in common, the two halves are totally separate, in that, if one spouse passes that 50% share does not automatically go to the surviving spouse and thus a probate would be required. Clearly, this is not a good option for most married couples.
The next option, for how you should hold title to your property is joint tenancy. While slightly better than tenancy in common, it’s still not a great solution. With the joint tenancy, when the first spouse passes away, the surviving spouse gets the property automatically without probate. However, when the surviving spouse passes away, there is a probate required before the property can be distributed to your children or other heirs.
The next option, is community property with right of survivorship. This option is very similar to joint tenancy in that after the first passing, the surviving spouse gets the property without probate. However, after the second death, a probate is then required. The difference between community property with right of survivorship versus joint tenancy is that there is a better tax basis with community property. In other words, the surviving spouse with community property gets a step up in tax basis. More on that later.
The next option, which we consider to be the best option, is a revocable living trust. Now, remember with the other three options there ends up being a probate before the property can be distributed to heirs. However, with a revocable living trust, there is no probate required after the death of both spouses. Let me explain further, so with the revocable living trust, title is transferred to the trust. What that means is the deed to the property reflects the trust as the owner, not the husband, wife as individuals. Therefore, the property is owned by the trust.When husband and wife pass away, the trust has the power in distribute the property to the beneficiaries named in the trust, without the probate court. This is a fantastic option because it saves families a lot of money and a lot of time.
Probate in California, typically, takes about a year and a half and costs tens of thousands of dollars, the amount of which will depend on the value of the property. Now, we don’t mean the net value, we mean the gross value. If a property is worth a million bucks, but has an $800,000 mortgage, for purposes of calculating the probate fees, we would use the million dollar number.
Probate is expensive, it takes a very long time and is a massive burden on your family. Therefore, we strongly suggest that title be held, in order to avoid probate. When someone asks how should they take title to their property, the answer is always a revocable living trust.Sometimes clients say, “Well, we’ll take title as joint tenants or community property with right of survivorship, and then when the first spouse passes away, the second spouse will then set up a trust.” While this ultimately is a decent idea, in that, as long as the trust is set up before the second death, you would avoid probate.
We’ve discovered that after the first death, most surviving spouses are hard-pressed to set up a trust either due to old age, the fact that they’re grieving or otherwise having a lot on their plate. We strongly recommend that families not wait until the first spouse passes, in order to set up a revocable living trust. The analysis we just gave of how to hold title to your property, was for a married couple. However, for a single person, things are a bit more simple. Single clients don’t have the option of joint tenancy or any of the other mechanisms we discussed, because there is no other owner on title.
For single folks, you really have two options.
- The first option, is holding title in your name.
- The second option, is holding title through a revocable living trust. In order to avoid probate and ensure that, that property passes on to who you’d like it to go to easily and inexpensively, you should always put title in a revocable living trust.
Thank you, for listening today. We hope you found this informative. If you have any questions, please give us a call.