We are often asked by clients “How should I take Title to My Home?” It is important to make sure you have titled your home and any other real property correctly to insure that your real property passes to your heirs. There are 3 common ways people hold title to their homes:
Joint tenancy: If real property is held in a joint tenancy, the owner who dies first does not control what happens to the property after his death. A house will pass to the surviving joint tenant outright and the surviving joint tenant has discretion and control to leave the asset to whoever she wants. And if the property is in the surviving joint tenant’s individual name at the time of her death, the property will need to go through probate before it is finally distributed. Further, under current law, the surviving joint tenant only receives a one-half step-up in basis on the property and may end up paying capital gain on one-half of the property after the first joint tenant’s death.
Community Property with Rights of Survivorship: Holding title as community property with rights of survivorship will take care of the capital gains issue. However, like a joint tenancy property, he who dies last wins! In other words, the property will pass outright to the surviving spouse, who can then distribute the property as she sees fit and may disregard the deceased spouse’s wishes. Further, if the property is still in the surviving spouse’s name on her death, then the property will need to be probated.
Revocable Living Trust: Property titled in a revocable living trust will avoid the probate process. Further, both spouses will have input into how the property passes. Finally, if the transfer of the property to the Trust is done correctly, the surviving spouse will avoid paying capital gains on sale of the property.