If you are married, one of your Estate Planning goals may be to ensure that ownership of real property transfers seamlessly from you to your spouse upon your death. To achieve that goal, you may wonder if you can simply use Joint Tenancy until one spouse dies and then set up a trust for the survivor. A better understanding of both the California Joint Tenancy laws and how a trust works may help you decide if such a set up works for your Estate Plan.
Joint Tenancy in California
Almost any type of asset can be jointly held, including real property, financial accounts, and securities; however, there may be different characteristics for different types of jointly held assets. For example, when a bank account is jointly owned, either owner is typically able to deposit or withdraw funds. Conversely, in order to transfer securities that are jointly owned all owners must sign off on the transfer. There are also different methods by which the various assets can be held jointly. With real property, for example, individual states determine how co-owners are allowed to jointly hold title to the property. The type of title you hold will impact how your interest in the property is handled upon your death. In California, the following types of joint ownership of real property are allowed:
- Joint Tenants with Rights of Survivorship – this type of jointly held property means that each owner owns an undivided interest in the whole, meaning there is a unity of ownership. As such, upon the death of one co-owner, his/her interest in the property automatically passes, outside of probate, to the remaining owners. Most married couples in California hold title to property as joint tenants with rights of survivorship. To create this type of ownership you must have the four unities, meaning the conveyance must at the same time, convey the same title, to the same interest in property, with the same right of equal possession.
- Tenants in Common – this is California’s default type of joint ownership. If the ownership document fails to specify which type of joint ownership was intended, tenants in common will be used (unless the owners are married or are registered domestic partners). With tenants in common, every tenant in common has the right to sell or encumber their interest without the knowledge, approval, or consent of their cotenants. No survivorship rights exist for tenants in common. Upon the death of one owner, his/her interest in the property becomes part of the estate of the decedent instead of passing to the other joint owners.
- Community Property with Rights of Survivorship – this type of joint ownership is very similar to joint tenants with rights of survivorship in that each owner owns an undivided interest in the whole. The owners can be married spouses or registered domestic partners. The primary difference is that unlike joint tenants and tenants in common, spouses and registered domestic partners holding property this way are fiduciaries and therefore owe one another a duty of the “highest good faith and fair dealing.”
- Partnership – a partnership is defined as an association of two or more persons to carry on as co-owners a business for profit.” Property is deemed partnership property if it is acquired in the name of the partnership, or by one or more partners, with either an indication in the transfer instrument of the person’s capacity as a partner or the existence of the partnership. Moreover, because a partnership is a distinct legal entity, partnership property belongs to the partnership and not to any of the partners individually.
If you are married, and your goal is to ensure that real property you own with your spouse will remain out of the probate process in the event of the death of one spouse, titling the property as joint tenant with rights of survivorship or as community tenants with rights of survivorship will both.
Using a Trust for the Survivor
You may also wish to structure your estate plan so that you are certain your marital estate will eventually be passed down to your children by creating a trust into which the property will transfer after the death of one spouse. Why would a trust be necessary? Typically, a trust is used to protect the property in the event the surviving spouse remarries. If, for example, you are the first to go and your spouse remarries, the new spouse could gain ownership rights to the property you owned with your spouse. In the event of a divorce, that property could be subject to the division of assets in the divorce, meaning it could end up in the hands of the new spouse. To prevent that possibility, a trust can be established to protect the property for your children. Your spouse can still benefit from the use of the property during his/her lifetime; however, because title to the property is held by the trust there is no risk that the property could be lost in a divorce, bankruptcy, or otherwise encumbered. If you wish your interest in property to go directly into a trust after your death, you will need to title the property as tenants in common to prevent your interest from automatically transferring to your spouse.
Contact The Collins Law Group
For more information, please join us for an upcoming FREE seminar. If you have additional questions about Joint Tenancy in California, contact one of our experienced Estate Planning Attorneys. Contact the Collins Law Firm by calling (310) 677-9787 or online at the collinslawgroup.com to register for one of our FREE estate planning workshops.
Attorney Caprice L. Collins is a top rated Harvard Law School graduate. She has 34 years of legal experience with a successful law practice devoted exclusively to Estate/Business Planning and Trust Administration. Attorney Collins is a well-respected keynote speaker on Wills, Living Trusts, Estate Planning, Business Planning and Trust Administration. She has appeared on California’s Real Estate Radio Station KTLK AM 1150 as a legal expert on Estate Planning and Living Trusts among many other notable media appearances.