There is no such form of ownership in California (or anywhere else in the United States of which I am aware) as "Tenants in Common with Right of Survivorship." There is "tenants in common," which means each person owns the specific percentage of the property indicated, or equal shares if no percentage is indicated. There is "joint tenants with right of survivorship," where each person owns the exact same interest, and the last surviving joint tenant owns the entire property. For married couples, there is also "community property" and "community property with right of survivorship." It may even be that your husbands' parents have made a transfer that creates what is called a "cloud" on the title of the property, because the nature of the transfer is not clear. This is because it appears to be trying to combine tenants in common with one aspect of joint tenancy.
You may be able to correct everything with a transfer from both of you to yourselves in a more proper form, or having your husbands' parents do a new transfer that corrects the previous transfer. Either way, you need to consult with a local real estate or estate planning attorney to get it sorted out. A call to a title insurance company may also be needed to make sure that whatever is done will, in fact, create a clear title for you and your husband.
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You should take title as "husband and wife as community property with right of survivorship".
This will enable the surviving spouse to receive a complete step-up in basis of the real property on the death of the first spouse. The step-up in basis will reduce the capital gains tax that is due when you sell the property.
Alternatively, if you take title as "husband and wife as joint tenants with right of survivorship" the surviving spouse will only receive a one-half step-up in basis of the real property on the death of the first spouse.
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You haven't told us where the property is located, and the answer to this question is probably very State specific.
The terms "tenants in common" and "with right of survivorship" are inconsistent in Illinois where I practice. Rights of survivorship are associated with joint tenants, not tenants in common. When a joint tenant dies, the surviving joint tenant(s) succeed to the interest of the deceased automatically and without probate.
On the other hand, when a tenant in common dies, his or her interest passes according to his or her will, if he or she has one, or if not, passes to his or her heirs at law, according to the laws of intestate succession.
So what would happen with "tenants in common with right of survivorship?" No idea. I suppose it could be argued that the "right of survivorship" being the last part of the phrase, is controlling and the other tenant(s) take the interest of the deceased tenant, but to my thinking this is in no way a sure thing.
A skilled real estate attorney practicing in the State where the property is located could prepare a corrective deed, clarifying the grantors' (parents) intentions.
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As my colleagues point out, you have "tenants in common", "joint tenants with right of survivorship", and "husband and wife (with or without right of survivorship, as appropriate)". My analysis is "joint tenants with right of survivorship." In none of the cases does the property revert to the inlaws.
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Having established that there is no such form of ownership as is recited on your deed you have now, I believe that you and your spouse CAN and SHOULD execute a document to fix it (regardless of what the grantor originally intended). You need to speak to an attorney about how to reflect title the way that both of you intend (ie, with or without rights of survivorship) and check with a title company to make sure the language in the new deed used to fix the problem will clear out any potential title issues. In any case, you and your spouse should NOT wait until one of you pass away to fix the issue.
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I agree with my colleagues. My guess is that this deed was drawn up as a "do-it-yourself" deed, and fortunately, you discovered the mistake soon enough to correct it. Your in-laws need to have another deed executed, this time by a qualified estate planning attorney. In many states, a deed to two people who are husband and wife creates a "tenancy by the entireties." That has the same legal effect as joint tenants with rights of survivorship, for all intents and purposes. THIS time around, your in-laws should set this up through an attorney, so it is done right.
They will also want to set up durable power of attorney forms for health care and finances, so they can avoid probate appointment of a guardian/conservator, if they become incapacitated.
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Sorry but there is no such thing as "tenants in common with right of survivorship". Your husband's parents mixed up two different kinds of ownership. Joint tenants with right of survivorship means that you both own the property equally, and if one dies, the property is then owned by the survivor. Tenants in common means that you each own the whole property, but there is no right of survivorship with this type of tenancy. The title is now clouded and you should ensure that it is cleared up. Since your husband's parents gave you the property, you can re-draft the title to yourselves in the proper tenancy. Community property tenants with right of survivorship is the same as joint tenancy, but it is a bastardization of the concept.