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by Judd Matsunaga, Esq.



A few months ago, there was a radio commercial in which a father was asking his son about the house the son was buying. After listening to his son’s responses, the father said,

“You’ve got no idea what you’re doing, do you son?” The son immediately responds, “I’ve got no clue. Hugs?”


A person’s home is usually the most valuable asset that they will ever own. Yet, most people take title in their own name or as joint tenants because they are not aware of a better alternative. But this deserves careful consideration since how one holds title could drastically affect things such as taxes, probate, and inheritance rights.


This article is to help equip you, i.e., the parent (or grandparent), with important information about how one should hold title to real estate so that you may impart said information to your children and/or grandchildren. Here are the pros and cons of the five most widely used methods of holding title to your real estate; namely,


  1. Sole Ownership

If you are single, you probably hold title to your real estate in your name alone. This is called “sole ownership” or “ownership in severalty.” The primary disadvantage of sole ownership is probate costs and delays upon death of the owner.


“But Judd, I have a will” you might say. A simple will cannot help keep your family from probate court. If your name is the only name on the title, the probate court is the only way to transfer the property to your heirs. That will cost tens of thousands of dollars (depending on the size of your estate) in probate fees, attorney fees, executor fees, etc. 


One possible advantage of sole ownership is with a married couple in which one spouse may be in an occupation that lends himself or herself to being sued. That spouse would take his or her name off title by executing a quitclaim deed that gives up any ownership interest in the home. Probate may then be avoided by having the spouse on title set-up a separate property Trust Agreement (see below).


  1. Tenancy in Common

This method of holding title is used when two or more people take title to a piece of property. This is a common method of holding title when the people involved are not married to each other. Tenants in common own a specific interest in the property. The interest can, and often is, unequal and is specified on the deed. For example, three siblings could own a piece of property with one owning 50% and the other two owning 25% each.


The major advantage of this form of ownership is that each owner can sell or will his interest to whomever he or she wishes. Tenants in common is popular in second marriages where each spouse wants to will his or her share to the children from the first marriage.


However, a major disadvantages of tenancy in common is that the interest owned is subject to probate court costs and delays upon death. Another major disadvantage is that you could find yourself with several new co-owners when your co-owner dies and the heirs inherit the property. Imagine how difficult it could be to get several owners to reach an agreement, especially if you are trying to sell the property.


I see this quite often when parents leave their home to multiple children, who eventually die and leave their interest to multiple children - what a mess! Usually, what these families do not understand is that their children probably don’t want to inherit the headache. Why not clean it up now?


“But Judd, Uncle Joe, refuses to sell, what can we do?” Well, you must understand that one co-tenant cannot hold all the others “captive” by refusing to sell. Any co-tenant has a right to force a sale through a real estate partition action, i.e., a lawsuit.



  1. Joint Tenants with Right of Survivorship

By far, this is how most married couples hold title (although parent and child, brother and sister may be joint tenants). Why? Because upon the death of one joint tenant, the surviving joint tenant automatically owns the whole - no probate. All that’s required to clear the title is recording an Affidavit of Death of a Joint Tenant and a certified copy of the death certificate.

One disadvantage of joint tenancy is that this usually just postpones probate. If the surviving owner subsequently dies without adding another owner (which often happens), or if both owners die at the same time, the property will almost certainly have to go through probate before it can go to the heirs.


Another disadvantage of joint tenancy can be that your will has no effect on who inherits your interest in the joint tenancy. For example, let’s say you own your home as joint tenants with your second wife. Your will says that your children (from your first marriage) are to get your interest in your home upon your death. Guess what? Your will does not control jointly owned assets, you probably disinherited your children.


From a tax perspective for a married couple, joint tenancy is probably the worst choice for holding title. If upon death of the first spouse the surviving spouse decides to sell the house (possibly to move closer to adult children), there could be huge capitol gains tax problems that could have been avoided with a better choice of holding title.


  1. Community Property with Right of Survivorship

This is a relatively new form of ownership for married couples (effective July 1, 2001) that combines the simplicity of Joint Tenancy and the “double step-up in basis” of Community Property.


Say what? Let’s say that H and W bought a house in 1965 for $30,000. H dies in 2007 when the same house is worth $550,000. Assuming title was held as H and W as Joint Tenants,

W receives a step-up in basis (market value) for only the inherited one-half ($275,000). When you add W’s historical basis of $15,000 (½ of $30,000) you get the new basis of  $290,000. If W sells for $550,000, there’s a $260,000 taxable gain.


Assuming title was held as H and W as Community Property, Federal tax law states that the basis of 100% of Community Property is stepped-up to market value date of death, i.e., $550,000. If W sells for $550,000, there’s no taxable gain - nothing is taxable. The tax savings could be huge!


The major disadvantage of Community Property with Right of Survivorship is (like joint tenancy) that this usually just postpones probate. If the surviving owner subsequently dies without adding another owner (which often happens), or if both owners die at the same time, the property will almost certainly have to go through probate before it can go to the heirs.


  1. Living Trusts

By far, the best solution to ownership of real estate is a Living Trust. Upon your death, you don’t need to worry about probate costs and delays since title to your real estate is in your trust. Also, since you will probably name yourself as trustee of your own trust, you don’t have to worry about losing control over your assets. You can buy, sell, refinance or gift away real estate just as you can when the property is in your own name.


If you become incapacitated, the successor trustee you named when you set up your trust will be able to step in and act for you. Your successor trustee is legally obligated to follow the instructions you put in your trust. When you die, the property will be distributed (with a 100% step-up in basis!) without probate according to the instructions in your trust, so you don't have to worry about unintentionally disinheriting someone.


In summary, how you hold title to real estate should be given careful consideration. You should check to see how title to your home is held and make any changes now while you still can. Before acting on any matter contained herein, you should consult with your attorney.



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