The method you choose for holding title on your real estate property in California can have unexpected legal and tax consequences, especially years from now when death or disagreement brings change to the relationship between the co-owners.

Given these distant, hard-to-imagine impacts, choosing how title is vested by the co-owners is often an afterthought (or even overlooked)! But the consequences of improper vesting can be devastating. Typically, problems do not arise until many years after the recording of the grant deed that includes the improper vesting. Then, the improper vesting suddenly becomes a problem upon the attempted sale or refinancing of the property, or upon the death or dissolution of marriage of one (or more) of the owners.

The method of holding title is particularly important in partnership and co-ownership situations to make sure that the business agreement of the partners or co-owners is enforceable.  Of course, any partnership or co-ownership agreement should be in writing and signed by the parties only after having it reviewed in detail by each of the owners’ legal advisers.  Plus, as years pass, co-owners need to assess the current method to discuss how the title is held, as it may need to change to align with estate plans or changes in family dynamics.

Common methods of holding title to real property in California

Fee simple absolute is a method of holding title for a sole owner, whether an individual, corporation, partnership or limited liability company.

Tenancy in common is a method of holding title by two or more persons or entities with either equal or different proportionate interests.

Joint tenancy is a method of holding title by two or more persons with joint and equal ownership, having the main characteristic of right of survivorship in the event of the death of a joint tenant.

Community property is a method of holding title indicating that the property represents the earnings of the marriage, and is available only to married couples or registered domestic partners.

Community property with right of survivorship is a method of holding title similar to community property with the added feature of right of survivorship in the event of the death of one of the owners.

Trustee of a living trust is a method of holding title that is required to fund a living trust for estate planning purposes.

Right of survivorship means that upon the death of one of the co-owners, the deceased co-owner’s share automatically vests in the remaining co-owners by “operation of law”.  While right of survivorship commonly appears on title, it can lead to unintended and irreversible ownership and tax consequences upon the death of one of the co-owners, often times frustrating  the deceased owner’s estate plan or partnership agreement.

This article only touches on the basics of the method of holding title on a property.

There are many additional aspects of each method you need to examine and compare, thinking not just about today, but decades from now. What could happen?  We recommend that the method of holding title be considered with the advice of an attorney who is knowledgeable in real estate and estate planning matters to avoid the unintended consequences of improper vesting.