Vesting Title in Real Estate
For investment property, perhaps one of the better ways of owning real property is in a limited liability company (LLC) created either in California or in another state with great asset protection laws and regulations. The LLC should in turn be owned by your living trust.
For non-investment property, using an LLC may also be appropriate depending on the circumstances. For example, if you are divorced or single, keeping title in your own name may be too risky and using an LLC instead may be more risk-averse.
In California, there are at least 5 other ways for more than one co-owner to hold title to hold title to real estate in California.
- As trustee(s) of a living trust
- As community property with right of survivorship (CPWROS)
- As community property (CP)
- As tenants in common (TC)
- As joint tenants (JT)
A good estate plan includes a living trust (as well as a will, a power of attorney for property management, and an advance health care directive). Vesting title to your California real estate in your living trust, whether married or single, not only determines exactly what happens to it when you die but also affords the non-probate transfer of ownership. In other words, avoiding probate is a benefit of having a living trust own your real estate.
CPWROS is used only by married couples and has become available in California over the last 15 years or so. When one spouse dies, the title can easily be transferred to the survivor simply by filing some paperwork with the county recorder’s office. The survivor gets a full step up in basis for capital gains tax purposes which ought to result in less taxes being paid upon sale.
CP is also only used by married couples. The difference with CPWROS is that transfer of title to the surviving spouse is not quite as easy when the first spouse dies. It makes little sense to use CP as a way to vest title when CPWROS is available and better.
TC is the way title is taken by those who want to retain control over their respective interest in the real estate without it necessarily passing to the surviving owners when one owner dies. Each owner of a TC interest has the right to dispose of his/her interest as they please, including giving it to someone who is not then an owner. This way of taking title is common for co-owners who are not married to each other.
JT automatically transfers ownership (with the filing of an affidavit with the county recorder) to whoever the other joint tenant(s) is when one owner dies. This way of taking title is very common. It doesn’t address what happens to ownership of the property when the last owner finally dies; to determine that, a probate must be started. Unlike CP or CPWROS, the surviving owner, even if that person is the spouse of the one who died, does not get a step up in their cost basis and so upon sale of the property may result in a profit on which a capital gains tax is owed. JT has other problems connected with it.
To discuss this in more detail, call a qualified attorney. Speak with Mitch Port at 310.559.5259.