One of the most frequent questions a California real estate attorney is asked is the best method for a husband and wife to hold title to the family home. The two most popular choices are as community property or as joint tenants. While this article will limit its discussion to those two alternatives, the reader should understand there to be other viable options, such as some form of trust.

Joint Tenancy

A joint tenancy is a form of ownership by two or more people who may, but not need be, husband and wife. Joint tenancy ownership must reflect the "four unities:"

(1) The respective ownership interests must result from a single instrument,
(2) executed and delivered at one time,
(3) conveying equal interests to the recipients,
(4) who hold undivided possession of the property.

The most unique feature of joint tenancy is its "right of survivorship." When one joint tenant dies, the property automatically vests in the other joint tenant(s), without the need for probate proceedings. A joint tenant cannot will his interest in the property to a third party, such as a child or sibling, since immediately upon death, the title vests in the surviving joint tenant(s). The surviving joint tenant takes the estate free from any creditor's claim, lien or debts against the deceased joint tenant. Joint tenants have equal rights to the use and possession of the property, and to the rents, issues, and profits generated from the property. Conversely, taxes and other expenses are generally apportioned equally among the owners. Generally, a joint tenant may not bind the other joint tenants by any agreement he or she may enter into regarding the property. If any of the four unities should ever be lost, then the joint tenancy will cease to exist and a tenancy in common (with no right of survivorship) will come into being. Thus, a transfer by one joint tenant (whether voluntary or "involuntary," such as a foreclosure) would destroy the joint tenancy, since the interests of all joint tenants would no longer derive from a single deed.

Community property

Community property is a method of holding property by a married couple only in one of the seven states that recognizes it (California, Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, and Washington). Generally, all property acquired by a husband and/or wife after marriage is considered to be community property. Exceptions-so-called "separate property-generally include property owned by either spouse before marriage, property acquired by either spouse during marriage by gift or inheritance, and rents and profits from separate property. The law generally gives husband and wife co-equal ownership, control and management of community property.. As such, neither spouse may sell or gift community property without the consent of the other party. California law makes community property liable for all debts of either spouse incurred after marriage. Unlike joint tenants, each spouse has the right to dispose of his or her one half of the community property by will. Without a will, however, the surviving spouse is entitled to receive the entire property, subject to probate proceedings.

Alternatives

Most experts argue that the tax benefits afforded by the community property structure make it the easy winner. Upon the death of a spouse, the surviving spouse is entitled to a full step up in the basis of the property to its fair market value. This should be contrasted with property held in joint tenancy, where only the half interest held by the deceased spouse is entitled to a step up in basis. For example, assume a couple that purchased a home for $500,000 that was worth $2,000,000 on the date of death of one spouse. If the home were held as community property, then as a result of the full step up in basis, the surviving spouse could sell the home for $2 million without any tax liability. On the other hand, if the spouses held the property as joint tenants, only the basis of the deceased spouse would receive a full step up, and on a sale of $2 million, $750,000 would be subject to tax. The other benefit of community property is the ability of either spouse to transfer his or her interest by will, to someone other than the surviving spouse. The survivorship aspect of joint tenancy denies this privilege to the joint tenants. The main advantage typically cited for joint tenancy is the elimination of probate proceedings arising from the right of survivorship. This benefit is somewhat reduced by California's fairly summary probate proceedings for community property. Another benefit of joint tenancy is that the surviving joint tenant takes free from any claims or debts against the deceased. As good as this may sound, the benefit is unlikely to be available in the case of a voluntary lien (such as a mortgage), since a lender will likely require both spouses to participate in the loan. As to an involuntary lien (such as a judgment), right of survivorship rules can be a mixed blessing. While it is true that a lien against the interest of a deceased spouse will die with that spouse, it is also true that a lien against the interest of the surviving spouse, will grow to apply against the entire property upon the death of the other spouse.