A living trust is a much better way to pass on property to loved ones, because it is a true estate plan. Joint tenancy with right of survivorship is a way to hold title which has a successorship built into it; and that's why some people try to use it.
You obviously have discovered the gift tax problem. I won't go into all of the other problems of joint tenancy, but I will highlight just a couple of them. One of the main problems is that it fails to provide for contingent beneficiaries. For example, if you were to predecease your father, and you have children who your father wants to receive your share of the property, joint tenancy will not allow this to occur. If you were to predecease your father, and then he passed away, his wife would receive 100% ownership of the property and your children would receive nothing.
Another problem is that when someone adds others to title as joint tenants, it exposes the property to the creditors of all of the other joint tenants.
My video "The Problems with Joint Tenancy" is available on YouTube by visiting the link below to my YouTube channel, FamilyTrusts.
There are numerous factors tht need to be considered before engaging in a transaction like what you have described, and all are dependent on a thorough fact analysis (which can't be done from the information you have provided). So I urge you to seek qualified legal counsel. But here are some issues to consider.
The transfer of Dad's residence will not result in reassessment for property tax purposes provided the property paperwork is processed. For this purpose, several deed types will work, but a gift deed would probably be the most suited. When recorded, it should be accompanied by a Preliminary Change of Ownership Reportand a form BOE 58 which is needed to claim the parent/child transfer exemption (both are available from the recorder's office or assessor's office).
Depending upon in which city the real property is located, there may be a transfer tax paya ble with the recordation of the deed based upon the amount of debt relief associated with the gift. You will need the advice of the county recorder's office to determine that one.
Also, there are several potential negative income tax issues. First, if the amount of the debt exceeds your father's income tax basis in the property, the transfer may result in income taxes due to "relief of indebtedness." Also, if you acquire the home from your father by way of a gift, vesus as an inheritance, your father 's income tax basis for calculating gain or loss will pass through to you, versus if you inherited it from him, the property would get a new "stepped up basis", thus eliminating any capital gain built up in the property prior to your father's death..
And yes there is the issue of gift taxes. However, with the recent enactment of the Tax Reform Act of 2010, as of January 1, 2011 a person can make gifts of up to $5,000,000 without paying any gift taxes (although officially a gift tax return, Form 709 is required. But the penalty for failing to file the form 709 is a percentage of the tax due, and if the gift is so small that there will be not tax due, well, you get the idea.
Gifting the home will not cause any period of ineligiblitly to receive Medi-Cal since the gifting of the home is not a violation of the 30 month look back rule under California's Medi-Cal rules.
You shoulod have someone look at the provisions of your father deed of trust to assure that the conveyance of part of the home in joint tenancy will not cause the "due on sale" clause to violated which could result in the loan being called.
And if the home is gifted to you and your wife versus just you, it will be jointly owned by the two of you. Alternatively, the home could be transferred to just you in which case it would be your sole and separate property.
If the home were transferred to you in an irrevocable trust, the home would thereafter likely be beyond the reach of any of your creditor claims and bankruptcy.
Like I mentioned, the transaction can have a multitude of consequences, and you really need to seek qualified legal counsel. But the above are some of the things to consider.