Joint tenancy is a type of ownership in California where two or more people share an interest in real or personal property often with a right of survivorship. Homebuyers in Los Angeles, Orange, Santa Barbara and Ventura Counties are often advised to hold the property in joint tenancy with a right of survivorship so that when one of them dies, the other receives the property. Married couples often take title to their home as joint tenants and when one of them dies, the surviving spouse gets full title to the property.
There are occasions where joint tenancy may be the correct way to hold title; when doing that, just make an informed decision.
One benefit to joint tenancy is the avoidance of probate. Since title “automatically” transfers to the surviving joint tenant, probate is unnecessary.
However, joint tenancy in California has problems associated with it. For instance:
Problems with Creditors – Creditors of a joint owner can come after the property to satisfy the debts of one of the joint owners which means the other joint owner can lose his interest in the property even when he is not responsible for the credit problem. If a joint owner has a judgment rendered against him, the creditor can seek to satisfy the judgment by forcing a sale of the property.
Capital Gains Tax Issues – By using joint tenancy instead of a living trust, a husband and wife may be forfeiting certain tax benefits that would be available such as what is called a “double step-up in basis”.
Gift Tax Issues – Also, by putting someone on title with you as a joint tenant, you may be making a taxable gift and a gift tax return may have to be filed.
Loss of Flexibility – The surviving joint owner who receives an asset will get the asset outright. The joint owner cannot spread out distribution of the asset over time. Let’s say a 20 year old receives an inheritance from a joint checking account upon the death of the co-owner, he will receive the entire account all at once rather than over a period of years as he matures.
Loss of Control – When you own property with other joint tenants, you give up unilateral control over the property. You no longer have the right to act alone with regard to selling, making improvements or refinancing the property.
To discuss how to take title to property, speak with a qualified tax attorney. Call Mitchell A. Port at (310) 559-5259.