Fact one: how it has the title
The first thing to know is how the property is titled. The first and most obvious question is who is in the title. This may seem simple. But often one spouse acquires the property in her name only due to financing, acquisition before the marriage, or simply because one spouse acted independently of the other.
The second piece of information to know is the wording that follows the proper names. These words will determine what will happen to the property upon the death of a co-owner.
“Husband and wife”
Often “husband and wife” follow the names. While this is likely a point of pride, it does not provide any property consequences due to the death or divorce of a spouse. In a “California divorce,” community property law will determine property rights. After the death of a spouse, words like “joint tenants,” “trustees,” and “common tenants” determine what happens to the property, not “husband and wife.”
“Common Tenants”
A deceased owner holding the title of “tenant in common” will have his ownership interest transferred to his heirs. The heirs are determined by will or, if there is no will, by intestate succession. The intestate estate is the default estate plan that California provides to people who have died without a will. For example, a common tenant deceased without a will has all community property for the surviving spouse; or if there is no surviving spouse, then to the surviving children; or if there are no surviving children, then to the surviving parents; and so on.
“Joint Tenancy”
Most of the time, when a married couple purchases real estate, it is owned by “joint tenants.” Upon the death of the first spouse, the property interest of the deceased spouse ‘disappears’ by operation of law. The surviving spouse becomes the sole owner.
The surviving spouse has all property rights and privileges. He can sell the property, encumber the property, or in a will transfer the property to whoever he wants.
Fact Two: Dangers of Joint Tenancy
In joint tenancy, there is usually no problem with the death of the first spouse. The surviving spouse files an “Affidavit of Death of Joint Owner” with the county recorder. Once the affidavit is filed, the surviving spouse can sell, borrow, and will inherit the real property.
The first danger of joint tenancy is Probate on the death of the second spouse.. There is no one left in the title. To transfer the real property to the children or to any other person, a petition is needed in the probate court.
The second danger of joint tenancy is that the survivor determines who will receive the property.. When the co-owners have the same children this is usually not a problem. But the first to die with children from a previous marriage may have those children deprived of her inheritance. Even if the first spouse has a will that conveys his or her interest in the real property to the children, that will is overridden by the joint title deed and the will has no effect.
The third danger of joint tenancy is adding someone other than the spouse as a joint owner. This is sometimes called the pauper’s estate plan. A parent adds a child to the joint tenancy real property title. The concept is upon the death of the parents, the son inherits the real estate without going through the succession.
But there are problems with this type of estate plan.
Liability: The creditors of the new co-owner can bind the property.
Divorce: A spouse of the new owner may acquire an ownership interest.
Loss of control: in the future the new co-owner must cooperate in the sale or financing of the property.
Gift Tax Return: The transferee receives real property that the Internal Revenue Service considers a gift.
Moment: The death warrant is not a sure thing.
Fact Three: How to Avoid Probate
One word: “Trust” or maybe two words: “Trust in life”. With a trust, joint owners maintain control and avoid probate.
Real property is transferred to the trust and is governed by the terms of the trust. The joint owners determine the terms of the trust and remain as owners. They only have the title of “trustees”.