Ways to Hold Title to Real Property in California

Ownership can be more complicated than most people realize. This is especially true when it comes to real property. Lawyers use the term “real property” to describe real estate, like a house, building, or land. In California mobile homes are not considered real property. A mobile home is classified as personal property and different rules apply.

When discussing the ownership of real property you may hear the terms ownership, title and deed tossed around interchangeably. Title refers to the legal concept of ownership. If you own a home you have title to that home and your name appears on the deed. The deed is the paper document that lists those with an ownership interest in a particular property. An owner is a person who holds title to a property and is named on the deed to that property.

There are a number of ways to hold title to real property in California.

1. Sole Ownership: One person owns the property outright and their name is listed on the deed. No other person or entity appears on the deed. A sole owner can transfer full ownership or partial ownership to another.
2. Tenancy in Common: Two or more people own the property together. The individuals may own different percentages. For example one person may own a 60% interest and the other only a 40% interest. Or you could have four people, each with a 25% interest. There can be any number of owners and percentages. Each person has the right to sell their share or bequeath it to another after their death. As a result, tenants in common may find themselves property with people they do not know or do not want to share with.
3. Joint Tenancy: Two or more people own equal shares of a property and have the right of survivorship. This means that if one joint tenant dies, their share of the property automatically passes to the surviving joint tenant(s). Property held in joint tenancy can be at risk to satisfy a judgment against one of the joint tenants. This is a danger when parents add their adult children as joint tenants in an attempt to avoid probate.
4. Community Property: Available in California and other community property states, this type of ownership refers to property held by a married couple. Under community property laws, all property acquired during a marriage is considered to be owned equally by both spouses, regardless of who contributed financially to its purchase.
5. Community Property with Right of Survivorship: For most married couples, other than a trust, this is the best way to own real property. This type of ownership allows a married couple to combine the best aspects of joint tenancy and community property. Like joint tenancy, upon the death of the first spouse the property passes 100% to the surviving spouse. However, a big advantage of this type of ownership is that the surviving spouse automatically receives a step up in basis of 100% of the value of the property for income tax purposes. Under traditional joint tenancy, the surviving spouse would only receive a stepped up basis on 50% of the value of the property without going to probate court. The stepped up basis means that the property is not subject to as much capital gains tax if the surviving spouse decides to sell the property.
6. Trust: Real property can be placed into a trust. Most people benefit from a revocable living trust as it allows their assets to be transferred easily to their intended beneficiaries without the need for probate. Property that is placed in the trust is managed by the trustee. For most probate avoidance trusts, the creator of the trust acts as the trustee during their lifetime and maintains complete control over the assets in the trust.

It is important to know how your real property is held. It can make a difference as to whether and to whom you can transfer it to during your lifetime or after death. In addition there may be significant tax consequences for you and those individuals to whom you make a transfer. It is crucially important not to make changes to the way real property is held without first discussing the ramifications with an attorney to be certain there are no negative consequences. Making initial changes can be easy; reversing changes may be difficult if not impossible.