Fundamentals of Holding Title with Multiple Owners

By Alexander J. Lewicki, Esq.

A question that buyers often ask prior to a home purchase is, how should we hold title? Exploring the various forms of title can save your family time and money, making it worthwhile to become knowledgeable about the basics before you are in contract on your next home. Of course, there is much more to know about holding title than what is outlined below. Each family has a unique set of circumstances that will determine what method is most appropriate for them.

California law recognizes several traditional ways to hold title among multiple owners. Property can be held as tenants in common, joint tenants, community property, community property with a right of survivorship, and through an entity, such as a corporation, Limited Liability Company (“LLC”) or partnership.

Tenancy in common is the default method of co-ownership in California. To have a tenancy in common, all that is required is that all owners take an equal right of possession in the property. One of the primary benefits of a tenancy in common is that co-owners can possess unequal shares of interest in the property. Property held as tenants in common is also freely transferable among separate owners. Upon the death of one tenant in common, the ownership interest will be passed on to their heirs through probate.

A joint tenancy is a method of co-ownership defined by the right of survivorship, whereby upon the death of one owner the property transfers to the surviving tenant while avoiding probate. To have a joint tenancy, all owners must take interest under the same title document, at the same time, possess ownership in undivided equal shares, and have an equal right to possess the whole property. An absence of one of these unities (i.e., by one owner’s conveyance outside of death) automatically severs the joint tenancy and creates a tenancy in common. A joint tenancy is often favored where several people, or a non-married couple, want to take equal interest in a property while avoiding probate. Although community property with rights of survivorship (discussed below) offers significant tax advantages, some married couples may prefer tenancy in common due to the possibility of enhanced liability/ creditor protection.

Community property is a method of holding title restricted to married couples and registered domestic partners. In California, property acquired during a marriage is presumed community property and the interests of each spouse in such property are equal. While community property can only be transferred with consent of both spouses, each spouse is able to will away their ownership interest freely. Community property does not avoid probate upon the death of one spouse.

A second, arguably more beneficial type of community property is community property with a right of survivorship. Community property with a right of survivorship combines many of the features of joint tenancy and community property. It avoids probate, creates a non-transferable equal interest in property, and garners certain tax benefits specific to community property (i.e., a full step-up in basis of the entire property value for the surviving spouse).

Another method of co-ownership is via a partnership, defined as an association of two or more people conducting a business for profit. Property acquired by a partnership is property of the partnership and not of the partners individually. This method is generally considered the simplest manner of

co-owning an investment property as the formalities imposed upon a corporation or LLC are not present. However, unlike a corporation or LLC, partners are generally liable for the debts of the partnership.

In addition to the forms of holding title described herein, you can also opt to hold title as trustee(s) of a trust, or in the name of a corporation or LLC. While holding title in the name of a corporation or LLC can provide buyers with a layer of individual privacy and some liability protection, the formalities imposed upon these entities by California law make them best suited for more sophisticated investment or business endeavors. Alternatively, holding title as the trustee(s) of a trust can offer several benefits that are commonly taken advantage of by the residential real estate purchaser.

A trust is a legal relationship whereby the trustee holds title to property for the benefit of a beneficiary. Property held in trust is flexible and only subject to the rules of the particular trust (assuming all provisions are otherwise legal). This allows for the

July 2021 disposition of property to be efficient and tailored to fit the specific needs of your family. For example, holding property in a trust can be perfect for those wanting to designate different interests in the property among multiple beneficiaries, or for those wanting management of the property to be undertaken by someone other than the beneficiary. Like joint tenancy and community property with a right of survivorship, a trust allows for the avoidance of the probate process.

One of the many perks of working with DeLeon Realty on your next home purchase is that you have access to an attorney to assist you with the various questions that you will encounter along the way. To the best of our knowledge, no other major local brokerage offers clients free access to confer with a real estate attorney to discuss matters like this. If you are looking to buy a home, I encourage you to reach out to me and the rest of the DeLeon Team so that we can provide you with all the information necessary to make an intelligent purchasing decision.

BELOW IS A QUICK SUMMARY OF THE TRADITIONAL METHODS OF HOLDING TITLE:

Who Can Hold Title? Tenancy in Common

Any number of persons.

Joint Tenancy Partnership

Any number of persons. Only partners in a business for profit (Note: partnership itself holds assets).

Community Property

Only spouses/ domestic partners.

Community Property With Right of Survivorship

Only spouses/ domestic partners.

Division of Interest

Equal or unequal. Must be equal. Interest is that of interest in partnership. Equal. Equal.

Right of Possession

Right of Conveyance

Status at Death

Avoids Probate?

Equal right of possession. Equal right of possession. Equal right of possession for partnership purposes only. Equal right of possession. Equal right of possession.

Each owner may freely convey their interest.

Passes to heirs. No survivorship right.

No. Conveyance severs joint tenancy and creates a tenancy in common.

Title passes to surviving owner.

Yes, but only until death of last remaining owner. Partnership may dispose of property per terms of partnership agreement. Requires consent of both spouses/ domestic partners. Requires consent of both spouses/ domestic partners.

Property remains in partnership, but interest in partnership itself may be liquidated per partnership agreement.

Yes. One half belongs to surviving spouse, other half goes to decedent’s heirs. Title passes to surviving spouse.

No. Yes, but only upon death of the first