My wife and I are in the process of closing escrow and wanted to understand the diffenrence
between joint tenants and community property. What would you recommend will be the best option in California? Can you also provide you advice from a tax perspective?
If a client doesn't have a trust, I generally recommend that clients take title as Community Property with Rights of Survivorship over Joint Tenancy. Both forms of title avoid probate, except in cases where both spouses pass away at the same time (say in a common accident).
The real benefit of holding property as community property with right of survivorship lies with cost basis. Community Property receives a step up in cost basis at the death of either spouse for both spouse's half of the estate, whereas joint tenancy property only receives a step up in cost basis of the deceased spouse's half.
An example is as follows:
Husband and Wife purchase a home for $500,000. Husband dies 10 years later and the home is worth $800,000.
Under Joint tenancy law, the husband's half would receive an increase in cost basis equal to the fair market value on the date of his death. Wife would receive the house under rights of survivorship and her basis would now be $650,000 (her basis of $250,000 plus H's new basis of $400,000).
Under community property with rights of survivorship, both the husband's and the wife's halves would receive an increase in cost basis equal to the fair market value of the date of his death. Wife would receive the house under rights of survivorship and her basis would now be $800,000 (the fair market value on the date of his death).
This answer is merely an opinion based on limited knowledge of actual facts and should in no way be deemed legal advice.
These are the kinds of questions that virtually demand a consultation with an experienced California estate planning lawyer. Please retain one to not only answer these questions, but to assist you and your wife with your estate planning. Good luck to you.
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Divorce / Separation Lawyer
Many attorneys are able to give precise credible guidance because they understand al the underlying facts then they apply those facts to the existing law and formulate legal opinions. You have virtually provided no facts and it’s most difficult to give any sort of precise answer. In general if you are married and anticipate being married for a while you probably should close as community property with right of survivorship. There are many nuisances and there could be different variations depending on the particular facts. To attempt to advice you above and beyond this level would be pure speculation.
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From a tax perspective, Community property with rights of survivorship is best. Because you are acquiring the property during marriage, the property will be presummed to be community property notwithstanding the holding of title in the event of divorce.
With all that said, neither form is a great option because neither addresses what happens if the two of you die in a common accident. If your intent is to avoid probate, you should also be considering a trust. I would suggest you consult with an estate planning attorney.
The general advice above does not constitute an attorney-client relationship: you haven't hired me or my firm or given me confidential information by posting on this public forum, and my answer on this public forum does not constitute attorney-client advice. IRS Circular 230 Disclosure: In order to comply with requirements imposed by the Internal Revenue Service, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein. While I am licensed to practice in New York and California, I do not actively practice in New York. Regardless, nothing said should be deemed an opinion of law of any state. All readers need to do their own research or pay an attorney for a legal opinion if one is necessary or desired.