How you hold title to an asset is a simple act generally taken with no, or little, thought of the ramifications. But the ramifications can be huge! The reality is how you hold title to an asset is extremely important as it has a multitude of significant legal and tax consequences, many of which are generally not known to the public at large.
WARNING! It is critical to NOT change title to an asset without first having the proposed change reviewed by a competent estate planning attorney.
These are assets in your sole name that you acquired while you were not married and have retained as your sole and separate property or property that was acquired while you were married by gift or inheritance. If you are married, and you want your separate property to remain as your separate property during marriage, it is extremely important that you keep title just in your name and not place the name of your spouse on title as a joint tenant or as community property. You can also create a Separate Property Trust that will contain only your separate property assets over which you will control 100%.
An asset in your sole name allows you to control all aspects of the asset, make management decisions over the asset and dispose of the asset at your death. With your name being the sole name on title, the actions of other people such as a spouse or other relative should have no impact on your separate property.
A joint interest is one owned by two or more persons in equal shares, by a title created by a single document, when expressly declared in that document to be a joint tenancy. The major characteristic of a joint tenancy asset is the right of survivorship. When a joint tenant dies, title to the asset immediately vests in the surviving join tenant(s). Hence, joint tenancy property is generally not subject to disposition by will.
For example, where title is taken as “A, B, and C as joint tenants”, if “A” passes away, the title to the asset will become vested in “B” and “C.” A’s heirs will have no claim to the property. This may be an intended or unintended result.
Caveat! If you hold 100% of an asset in your individual name and want to add other people on title with you as joint tenants, there are a number of red flags that should come up, and you should heed those red flags before proceeding. Some of the red flags are:
Community Property is that property acquired during marriage by a spouse while living in California. Each spouse has equal management over the asset. Each spouse has the right to dispose of their half interest to whomever the spouse desires (there is no automatic succession similar to joint tenancy) by gift, will or trust. If the spouse dies intestate, the spouse’s half interest will pass to the surviving spouse.
Community property title can be advantageous for income tax basis purposes. Upon the death of the first spouse, the adjusted basis of the asset is allowed to be adjusted again as a result of the death, which may allow the survivor to pay less income tax should the survivor later decide to sell an asset that has appreciated in value since the time of its purchase.
This type of title is a hybrid between community property and joint tenancy. It will cause an asset held by spouses to automatically pass to the survivor of them upon the death of the first spouse. The asset will retain all other characteristics of community property.
Under tenancy-in-common, the co-owners own undivided interests which need not be equal. For example title could read “Mr. A, a single man as to an undivided 25% interest, and Mr. Z, a single man as to an undivided 75% interest, as tenants-in-common”. There is no automatic right of survivorship (as there is in joint tenancy). Each owner has the right to dispose of their own interest at death.
Owners of property can reduce to writing their particular agreement regarding an asset or assets. Some of the more common property agreements are:
This agreement will generally recite that certain assets constitute the separate property of an individual.
This agreement is signed by a married couple and recites assets that are to constitute their community property. This agreement may change the character of joint tenancy assets to community property if desired.
The owners of an asset titled as “Tenants-in-Common” may want to agree in writing to the rights and responsibilities of the co-owners to one another.
Co-owners of real property (whether owned as community property, joint tenancy, or tenants-in-common) may want to reduce to writing all of their understanding as to who will manage the property, how it will be managed, the rights of the parties during the time they own the property, and what happens if one of them no longer wants to own the property or dies.
These are agreements between people before they marry or after they marry which recite what assets and liabilities they have and what their rights will be as to the assets and liabilities they presently have and might acquire or incur in the future.
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