| Community
Property with Right of Survivorship
On
July 1, 2001, new California Civil Code Section 682.1 went into effect,
which allows husbands and wives to hold title to real property as
"community
property with right of survivorship." Lets look at an example to
see how this works.
Background
Dennis
and Martha are married, and live and own a home in California. Their
home
has appreciated in value.
Joint
Tenants.
If
Dennis and Martha own their home as joint tenants, they have created
50%-50%
interests and a "right of survivorship". This means that if Dennis
dies,
a probate is avoided when Martha files an Affidavit – Death of Joint
Tenant
and a certified copy of the death certificate with the County Recorder.
Martha, as the surviving spouse, inherits the home outright (100%)
regardless
of what they say in their wills.
Community
Property.
Only
married couples can own real estate as community property. If
Dennis
and Martha own their home as community property (without the effect of
the new law), they have created 50%-50% interests, but without a right
of survivorship. Each may pass on his/her share (50%) of the home to
whomever
they name in their will. If Dennis dies and leaves his 50% to Martha, a
probate isn’t necessary although a Spousal Petition needs to be filed
with
the court confirming that 100% of the property belongs to Martha.
Joint
Tenancy or Community Property - What’s the Difference?
The
main advantage to holding title as community property is that upon the
death of one spouse the entire property receives a step-up in basis for
capital gains tax purposes. In contrast, if the spouses hold title as
joint
tenancy, only the decedent's one-half of the property will receive the
step up in basis. Therefore, community property can offer capital gains
tax advantages that joint tenancy does not offer.
One
of the primary advantages of joint tenancy is that upon the death of a
spouse, transfer is simple and “automatic” once the Affidavit and death
certificate are recorded. With community property, a surviving
spouse
must incur the expense of the Spousal Petition procedure to facilitate
the transfer of title to the home.
New
Law: Community Property with Right of Survivorship
The
new community property with right of survivorship deed combines the
capital
gains tax advantage of community property with the survivorship rights
of joint tenancy. This would mean that if Dennis dies, Martha will own
the home outright (assuming proper filing is done) and receive a
"stepped-up
basis" for the entire home (if it has appreciated in value) for capital
gains tax purposes.
In
order to create this new form of ownership, Dennis and Martha would
sign
a new deed that specifically states that Dennis and Martha are taking
title
as "husband and wife as community property with right of survivorship".
One trap for the unwary is that Dennis and Martha need to sign the deed
twice - once as Grantors and once as Grantees. Normally only the
Grantors need to sign a deed.
Professional
Advice
Couples
owning appreciated real estate may want to use the new law. To do so,
consult
an attorney to ensure that doing so is consistent with the couple's
entire
estate plan (there may be estate tax considerations). The attorney can
prepare a proper deed along with supporting documents required by the
County
Recorders Office.
For
more information on the Community Property with Right of Survivorship
Deed
contact Raymond B. McFalone.
Home
Page
The
Law Office of Raymond B. McFalone
Call
or email us for a free estate planning consultation!
Raymond
B. McFalone
1990
N. California Boulevard, Suite 830
Walnut
Creek, CA 94596
Phone:
(925) 944-1438
Fax:
(925) 932-8616
Email: ray@raymcfalone.com
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