Fact One — How You Hold a Headline
The first thing to know is how the property is actually titled. The first and most obvious question is who is entitled. It may seem easy. But often one spouse acquires property only in his or her name because of financing, pre-wedding acquisition or simply because one partner acts independently of the other.
The second bit of information to know is the words that follow the proper names. These words will determine what will happen to the property after the death of the co-owner.
“Husband and wife”
Often “Husband and Wife” follow the name. While this is most likely a matter of pride, it does not have possession consequences due to the death or divorce of a spouse. In “California Divorce” community property law will determine the right of ownership. After the death of a spouse, words such as “co-tenant”, “trustee” and “co-tenant” define what happens to the property, not “Husband and Wife”.
“Co-tenant”
A deceased owner who held the title of “co-tenant” will transfer the title to his heirs. The heirs are determined by will or if there is no will by will. Succession without a will is the default inheritance plan that California provides for people who die without a will. For example, a co-tenant who has died without a will has all community property owned by the surviving spouse; or if neither spouse is still alive, then to the children who are still alive; or if no children are still alive, then to the parents who are still alive; etc.
“rent together”
Most often when a married couple acquires real estate, it is owned as “co-tenants”. After the death of the first spouse, the deceased spouse’s ownership interest is ‘lost’ by law. The surviving spouses are the sole owners.
The surviving spouse retains all ownership rights and privileges. He can sell the property, encumber the property or in a will pass the property on to whomever he wishes.
Fact Two — The Dangers of Sharing Rentals
In a joint lease there is usually no issue of the death of the first spouse. The surviving spouse files a “co-tenant death affidavit” with the county registrar. Once the affidavit is filed, the surviving spouse can sell, borrow, and pass on the actual property to Will.
The first danger of co-renting is a will in the death of the second spouse. Nothing left in the title. In order to transfer real property to children or other persons, a petition in probate court is required.
The second danger of co-leasing is that the survivor determines who gets to receive the property. When co-owners have common children this is usually not a problem. But the first person to die with children from a previous marriage can sever those children from their inheritance. Even if the first spouse has a will conveying his interest in the actual property to the children, that will is overridden by the joint lease and the will has no effect.
A third danger of co-renting is adding someone other than your spouse as co-tenant. This is sometimes called the pauper’s estate plan. Parents add a child by title to real property in a co-rent. The concept is that after the death of a parent, the child inherits the actual property without going through a will.
But there is a problem with this type of housing plan.
Liability: the creditor of the new co-owner may mortgage the property.
Divorce: the spouse of the new owner may acquire ownership rights.
Loss of control: in the future, the new co-owners will have to cooperate in the sale or financing of real property.
Gift Tax Reporting: The assignee receives the actual possession that is considered a gift by the Internal Revenue Service.
Time: The order of death is not certain.
Fact Three — How to Avoid Probate
One word: “Trust” or maybe two words: “Living Trust.” With trust, co-owners maintain control and avoid wills.
Real property is transferred to the trust and governed by the terms of the trust. The co-owner determines the terms of the trust and remains the owner. They only carry the title of “guardian”.
