If you own your property as joint tenants with right of survivorship California law presumes you mean exactly that; even if the joint tenants are husband and wife. This means that married couples do not automatically receive the benefits of community property ownership upon the death of the first spouse, even for property that would be considered community property if the couple divorced. In order to claim community property benefits at death, the couple must state in writing that the property is intended to be their community property despite its form of title.
A NEW TITLE FOR CALIFORNIA REAL PROPERTY OWNERS
As of July 1, 2001, the California Civil Code Section 682.1 provides California residents with a new form of title for their real property: community property with right of survivorship. Note that the title does not apply for joint accounts held in banks or other financial institutions.
In creating this new form of title, the state legislature provides a form of title which:
- Can be terminated by affidavit of the surviving spouse; and which
- Enables the real property to receive a complete step-up in basis on the death of the first spouse, for income tax purposes.
Unlike joint tenancy, this form of title can only be used by married couples.
Although such form of title has not been tested with the Internal Revenue Service for California residents, it has been accepted by the Internal Revenue Service as community property in Arizona without problems.
If you are a client of mine, you know that I always ask you how you hold title to your property. Most married couples who have done no estate planning have taken title to their real property as joint tenants. Upon the death of a spouse, the survivor usually terminates the joint tenancy by recording an Affidavit – Death of Joint Tenant with the county recorder’s office for the county in which the real property is held. In so doing, the survivor loses the opportunity to have the deceased spouse’s interest in the property stepped-up to its date of death value. The result is that upon sale by the surviving spouse, there may be a capital gains tax due on the amount of the deceased spouse’s interest in the property which increased from the date of purchase value.
Particularly hard hit may be elderly surviving spouses who have lived in their homes over thirty years and have seen a large gain in the value of the property during that time. They may be on a fixed income and face a large capital gains tax liability.
SPOUSAL PROPERTY PETITION
The alternative to filing the Affidavit – Death of Joint Tenant is to file a spousal property action with the superior court’s probate department under the California Probate Code Section 13650. Upon declaration of relevant facts, the surviving spouse may be able to obtain a court order which declares the property to be community property even though title is held as joint tenants. The cost of going through this process is relatively modest, but it may deter some surviving spouses.
REFINANCING YOUR HOUSE – HOW YOU CAN HELP
If you are married and are refinancing your house, now is the time to take an active role in that process. You can help educate your mortgage broker, title company, and escrow company on the importance of taking title to property. This is not a decision that should be left to a clerk. Ask me about what form of title is appropriate and see to it that the appropriate form of title is used when you refinance your house.