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Community Property With Right Of Survivorship
A New Form Of Title In California
Traditionally, married couples have
opted to hold real property (usually the family residence)
as “Joint Tenants with Right of Survivorship” as
the form of title because their brokers assured them that
this was the best way to avoid probate. However, questions
have continued to plague the legal and accounting profession
as to the tax treatment of such vesting.
As of July 1, 2001, married couples
can hold real property located in California in a new form
of title: Community Property with Right of Survivorship. New
Section 682.1 to the Civil Code provides that the community
property of a husband and wife, when expressly declared in
the transfer document to be “community property with
right of survivorship,” may transfer automatically to
the surviving spouse without probate.
The statute establishes the right of
survivorship benefit while maintaining the favorable tax status
of community property under federal law. The tax status of
community property allows for a step-up in basis in property
upon the first spouse to die. For instance, if a couple paid
$250,000 for their home and at the time of death the home
is worth $500,000, the basis in the property is "stepped
up" to the fair market value, $500,000. Alternatively,
if the property were held in joint tenancy, only the interest
of the first spouse to die would be "stepped up".
The result would be an ending basis in the home of only $375,000.
Increasing the choices for vesting of
title increases the need for competent legal and tax advice
to spouses who are acquiring property. Otherwise, the enactment
of this law may strengthen the position of the Internal Revenue
Service, following the United States Tax Court decision in
Estate of Young vs. Commissioner (110T.C. 297 (1998)), that
if title is not taken as community property, then it is not
community property for tax purposes and a probate decree will
not change that position.
If you are married and hold real property
in joint tenancy, you may wish to consider executing a new
deed to transfer title to your spouse and yourself in community
property with right of survivorship. If you are thinking about
acquiring new property, the same consideration should be given.
Of course, if you have a living trust, title to your real
property should be in the name of your living trust.
If you would like more information about
this, please contact Sheila Muldoon at: (949) 474-7368 Ext
108 or via email smuldoon@buschfirm.com.
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