Holding Title To Your Property

Pacific Beach Real Estate, Mission Beach Real Estate, San Diego County Real Estate

OK, here's the scenario. You are either buying a new home or purchasing an investment property and wondering how you should hold title to the property. Alternatively, it is quite possible that this article will get those of you who are not necessarily in the buying mode to merely get you thinking about the methods by which you are now holding title to your property(ies). Unfortunately, the large majority of buyers do not give this very important issue any thought until they are asked just before closing. Sure, you can ask an attorney but, here in California, real estate acquisitions do not typically involve attorneys. Therefore, I have put together a short list of the pros and cons of the most popular title-holding methods:

Sole Ownership

If you´re single, you only have two options for holding title: sole ownership, also called ownership in "severalty", and a living trust. I will describe the latter form below. The sole ownership method is also used by married individuals taking title in one spouse´s name alone. In this case, the other spouse will usually be asked to sign a quit claim deed to relinquish marital rights in the property. This could occur when for instance, one spouse´s credit has been damaged to the point where the lender will not permit the spouse to be included on the loan, etc. Overall, the drawback of this form of ownership includes the loss of tax advantages plus probate costs and delays when the owner dies. Most folks who choose this form do so simply because they are unaware of the disadvantages or any better alternative.

Tenants in Common

When two or more individuals acquire real estate together and they are not married, they often take title in this form. The advantage to TIC is that the ownership interests between the parties do not have to be equal. For example, one co-owner can own a one-half interest and two other co-owners can each one one-fourth interests. Then, when one TIC dies, his/her share passes according to their will to the named heirs. If the deceased TIC does not leave a will, then that person´s share passes via state law of intestate succession to the nearest living relative. If no relatives are located, the deceased´s share "escheats" to the state. TIC is also common in second marriages where one spouse wants their share of any property to go to his/her children from a prior marriage. Disadvantages include the fact that TIC shares are subject to probate court costs and delays. Potentially more serious is that one TIC can force the sale of a property even if the other co-owners do not want to sell. This is called a "partition lawsuit" wherein the court orders the sale with proceeds divided among the co-owners.

Joint Tenancy with Right of Survivorship

Many spouses hold title to their homes and other real estate in joint tenancy. In JTWROS, all joint tenants must take title at the same time, via the same deed, and hold equal interests. For example, two joint tenants would each own one-half interests in a property and three joint tenants would each own one-third interests. There can be no unequal joint tenancy interests. Also, when one joint tenant dies, the surviving joint tenants automatically receive title to the deceased tenant´s share without probate costs or delays. Thus, the will of the deceased has no effect on joint tenancy property. However, one drawback of JTWROS can be most evident when the joint tenants are married spouses. That is, upon the death of one joint tenant (spouse), only the deceased spouse´s one-half interest in the home is "stepped-up" in tax basis which is equal to one-half the fair market value of the entire property at the time of death.

Community Property

Spouses in "community property" states (e.g., California) often take title as community property. In so doing, each spouse owns a one-half interest and can pass their share by will to either the surviving spouse or another person such as a surviving child or children. Also, as compared to JTWROS where only the deceased´s share of a property receives a new stepped up tax basis to market value on the date of death, with community property, the surviving spouse receives a new adjusted cost basis for the entire property stepped up to market value on the date of death. Please note that in 1987, the IRS extended this community property step up to market value basis advantage to spouses holding joint tenancy title in community property states. The IRS ruling requires that spouses acknowledge in writing to each other that their joint tenancy property is also community property.

Community Property with Right of Survivorship

On July 1, 2001, California legislation was enacted permitting married couples to hold property as "Community Property with Right of Survivorship". This new form of ownership shares many of the characteristics of community property but adds the benefit of the right of survivorship similar to JTWROS. Thus, it combines the best features of both JTWROS and Community Property forms of holding title. The best way to explain the difference between these two forms of holding title is to share a typical scenario. You´re at the escrow office when you´re asked, "How do you want to hold title?" If you are like most married property owners and assuming you have not read this report, you would probably choose, joint tenancy. However, if you don´t have a particularly unique legal issue, community property with rights of survivorship (CPWROS) may be your best option and it has to do with tax treatment for your surviving spouse if he/she decides to sell the property after your death. CPWROS allows married owners to take advantage of the same automatic title transfer rights provided upon death for joint tenancy title owners while also benefiting from the improved tax treatment allowed by virtue of holding title as community property. The tax advantage of CPWROS occurs because of the way tax law adjusts the reported cost of a sold property whose title has changed due to the death of a spouse3;otherwise known as "tax basis". With CPWROS, the tax basis is stepped up to an amount equal to the fair market value of the entire property as of the date of the deceased spouse´s death. Thus, when the property is sold for fair market value, there would be zero gain to report. But, with joint tenancy, only the half share of the property attributed to the deceased spouse would have increased to fair market value3;a much less desirable result. See the small example below. Property title changes for property which has already been titled can be accomplished quite easily. However, if you are uncertain as to how to proceed, you should seek legal and/or tax assistance.


  • Purchase Price/Original Basis: $500,000
  • Fair Market Value on date of Deceased Spouse's death: $1,000,000

Joint Tenancy Gain

  • Sales Price: $1,000,000
  • Stepped-Up Taxable Basis: -$750,000
  • Gain: $250,000


  • Sales Price: $1,000,000
  • Stepped-Up Taxable Basis: -$1,000,000
  • Gain: 0

Living Trust

Both single and married property owners may hold title in a revocable inter vivos ("among the living") trust. In a trust, until the trust creators die, the trust assets such as a home, rental property, stocks, etc., are bought, sold, refinanced and managed by the owners (trustees). Also, the trust provisions can be changed or revoked like a will. However, when an owner dies, the living trust becomes irrevocable and the successor trustee, such as a spouse, adult child, or bank trustee, takes over and administers the trust assets without having to go thru probate. There are other advantages. First, if a trustor becomes unable to manage his/her affairs, then the successor trustee is able to manage the trust assets, even by selling them if necessary. This avoids the cost, court delays and appointment of a conservator. Another advantage is that trustees may be able to shield property from attack by certain unsecured creditors. How title is vested has important legal consequences. While I have attempted to provide the "basics" in this article, you may wish to consult with an attorney to determine the most advantageous form of ownership for your particular situation.

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