This post explores the options and the hazards for co-owners of California real property avoid probate without a trust. Options to a trust are; tenants-in-common, joint tenancy and community property with the right of survivorship. The hazard is probate court on the death of second owner.
Probate is a set of California laws that determine who inherits and how. Probate requires a filing in court and an order from the court on who inherits. Probate is time consuming, expensive and a matter of public record.
Real property owned by two or more individuals in name only are called “tenants-in-common.” A tenant-in-common owner transfers by either “revocable transfer on death deed” or probate court. The surviving co-owner may not be the heir and may have a new co-owner.
Co-owners can avoid probate on the death of the first owner with the magic words “as joint tenants.” Joint tenants have the “right of survivorship.” A surviving joint tenant owner inherits the deceased owner’s interest without probate court. If the phrase “as joint tenants” is missing the default is as tenants-in-common and transfer is in probate court.
Community property with the right of survivorship
Another of form of joint tenancy ownership in California is “as community property with the right of survivorship.” This right of survivorship is for married couples only. In addition to the right of survivorship, this phrase allows on the death of the first spouse, a full step-up in the basis of the real property to fair market value. Full step-up in basis may provide a reduction in capital gains tax on the subsequent sale of the real property.
Many states allow the right of survivorship with the phrase “as husband and wife.” This is not true in California. In California, the phrase “as husband and wife” does not provide the right of survivorship. The surviving spouse requires a court order from the probate court to inherit.
Right of Survivorship
Even though the right of survivorship is automatic, the public record maintained by the county recorder is not automatically updated. For the survivor to sell or borrow on the real property, an affidavit of death must be submitted to the county recorder by the survivor. If there is only one survivor, as is most often the situation, the survivor owns as an individual. On the death of the surviving owner, the hazard of probate becomes the reality.
Real property owned by two or more individuals in name only are called “tenants-in-common.” A tenant-in-common owner transfer either by a revocable transfer on death deed or in probate court. Co-owners can avoid probate on the death of the first owner with the magic words “as joint tenants” or as “community property with the right of Survivorship.”