How many times has one of your clients asked you “How should I take title to my new home?” It’s a question I get all the time as an estate planning attorney. You have the opportunity to make sure that your clients have all the benefits of rightly titled property and they will definitely thank you for it.
Why is titling property correctly so important to homeowners?
First, if titled incorrectly, the property owner cannot control what happens to the property after he dies; second, if titled incorrectly, the heirs can lose the property to creditors, the government, or even an ex-spouse; third, if titled incorrectly, the heirs will have to pay capital gain on the sale of the property.
Four Common Ways to Hold Title
- Joint Tenancy: Avoids probate, but the owner who dies first cannot control what happens to the property after his or her death. Probate is avoided on the death of the first joint tenant, but not the second joint tenant. Finally, the surviving joint tenant will pay capital gain on one-half of the property after the death of one joint tenant. Probate is not fun- it is time consuming and costly!
- Community Property: Possibly the most common way for married couples to own property, Community Property causes half of the property owned as community property to be probated upon the first death and the whole property must be probated upon the second death.
- Community Property with Right of Survivorship: Like joint tenancy, CPw/ROS is a he who dies last wins situation, because the surviving owner controls the disposition of the property on her death.
- Transfer on Death Deed: Effective in California 1/1/16. Allows beneficiary of property to be placed on deed. Avoids probate, but comes with negatives including (1) lack of privacy, (2) only living beneficiaries inherit, (3) risk of litigation for undue influence, and (4) risk of contradiction with will or trust.
The Fifth and Best Way to Own Property – A Revocable Living Trust:
The best way for your homeowners to own their property is in a revocable living trust.
- A properly drafted and funded trust will avoid time consuming, expensive and public probate upon the first death and the second death.
- A revocable living trust will make sure that the right people receive the property after the death of both owners and that it doesn’t go to creditors, predators, or future spouses.
- Property received by the heirs can be sold free of any capital gain tax and can be protected from creditors and predators of the heirs.