Genoveva Meza Talbott
Joint Tenancy & Estate Planning
There are several ways to own real property jointly. Whether the property needs to go through probate after the death of an owner depends on the type of joint ownership.
The two most common forms of joint ownership in California include:
● tenancy in common
● joint tenancy with right of survivorship
This blog will only discuss joint tenancy with right of survivorship as it is a very common form of title used by families in California.
What is it?
Joint tenancy with right of survivorship means that each person owns an equal share of the property. When one owner dies, that person’s share immediately passes to the other owner in equal shares without going through probate. Joint tenancy is known for being a simple and inexpensive way to avoid probate, but the tax and legal problems of joint tenancy ownership has the potential to cause trouble.
Restrictions during your lifetime?
Under joint tenancy, two or more people own a property together in equal shares. This means that joint tenants cannot sell or pass on their interest in the property without breaking the joint tenancy. They can choose to sell together, of course.
What happens at death?
While they co-own the property, if one joint tenant dies, that person’s interest passes to the surviving owner or owners. The survivors simply have to have certain legal documents drafted and recorded with the county where the property is located to properly make the title change.
The last surviving joint tenant owns the whole property and can sell, mortgage, or pass on the property to their heirs without restriction. However, when that last owner dies, the property will go through probate if they do not have any other estate planning in place.
What goes wrong too often?
Needing probate administration after the surviving spouse passes away is something that happens much too often in the case of married couples. Changing title of the property once the first spouse is relatively simple. But many times despite good intentions, they don't do the legal paperwork to change the property title to their name alone before they themselves pass. Or, even when they do change title to their name, they don’t do any estate planning because they assume that their heirs would also inherit the property in the same simple manner they did. Sadly, this is not the case. Without proper estate planning, the property will likely have to go through probate in order for the heirs to inherit from the parent.
Also, if the property goes through probate, inheritance laws will apply so any wishes or desires the parents had about how, when, or to whom the property would go will not be possible. Intestacy laws will dictate the who, when, and how.
Another common issue that comes up is when parents put their homes in joint tenancy with their adult children. There are many problems with this attempt to avoid estate planning and probate, but the costliest is the loss of the step-up basis. In California, this is very important because normally the property being inherited is worth much more than when it was originally purchased. This means a potentially large capital gain. The loophole is the step-up in basis, which essentially wipes clean the original purchase price and replaces it with its current market value at the death of the original owner. If you own a home with your child as joint tenants, your child will only receive a step up in basis on your half of the value of the home when you die. Neverminded the fact that none of the other siblings will inherit this asset nor benefit from it unless the child that inherited chooses to gift something to them during their lifetimes or at their death. Telling them to do so and having them promise that they will do it while you are alive doesn't guarantee that they will do it after you’re gone.
What can you do?
The best thing to do is create a proper, comprehensive estate plan that not only addresses all your concerns but also takes into account things like capital gains and minimizes the bill from Uncle Sam.
Schedule your complimentary estate planning consultation to talk about your specific estate and goals.
Meza Talbott Law
A Modern Family + Estates Firm
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