What does taking title mean and what are my choices

It’s California. It’s 2012. Nothing is simple or easy. One of the things you need to consider when buying a home is how to hold title.  What’s that? Briefly, after you find the house and your offer is accepted your paperwork and money disappears into a black hole called “escrow”. Your contact with the black hole, called the “escrow officer” will eventually ask you how you want to hold title. What they mean is how the deed to your home will be prepared. Calling escrow a black hole is not a slight, it’s critical and can make or break the deal, but exactly what escrow is and what escrow officers do all day is a subject for another day. Right now we are talking about how to answer the “how do you want to hold title” question. Back in the day, when mom and dad bought their house, the question was simple “joint tenants”. Joint tenancy is a legal concept with two important components: the joint tenants are presumed to hold the property equally, i.e. 50/50 and at the death of one joint tenant, the survivor automatically owns the property. This occurs without a probate, a trust, or any action on the part of the surviving joint tenant; like a magic trick, the rabbit just pops out of the hat. For a young family just starting out together, with not a lot of separate assets, joint tenancy makes sense: the property is equally divided, and if somebody is hit by a bus on their way to work one day, the surviving spouse is protected. In the case of a second marriage, joint tenancy may not be ideal. If one spouse has lots more assets and money than the other, or if a family group is buying a home together, what should be considered is called “tenants in common”. Tenants in common allow the people contributing different amounts of money to the transaction to hold fractional shares of the property. For example, if Dad, brother and sister are pooling their money, title can be held something like “dad a half interest, brother a quarter-interest and sister a quarter-interest, as tenants in common”. This titling protects the various interests in the event of the death of one of the tenants in common; their share passes to their heirs and not to the other tenants in common. The big downside of tenancy in common is that everybody has to agree to a sale or refinancing; if there is a falling out, problems can arise. Husbands and wives, as well as registered domestic partners, have another method of holding title, called community property. In this concept, the couple is presumed to share the wealth and split the equity and property value increase equally during the term of the marriage or partnership. The big advantage to this is that at the death of the first spouse or partner, the survivor gets a “stepped up basis” for inheritance and income tax purposes. That does not mean much now, but consider this. If you bought the ARCO Plaza in 1950 with your spouse, your spouse dies in 2004 and you sell the ARCO Plaza in 2006; you saved a ton of taxes. The downside of community property is the mechanics of taking the exemption at the death of the first spouse. There is often a requirement for a court proceeding. To combat this, spouses and domestic partners can take title “community property with right of survivorship”. This technique gives you the stepped up basis while allowing the property to pass to the surviving spouse automatically at the first death. People buying now should consider using this technique since in the Inland Empire; you are probably buying at the bottom of the market and in the years to come prices will likely rise. It’s nice to take full advantage of that appreciation. Domestic partners may also hold title in their own names as domestic partners. To do this, you must be a registered domestic partner. Single people have more limited options. You are pretty much limited to “A, a single man” or “B, a single woman” in taking title. If a married person is taking title in their own name, your choice is “A, a married spouse as their sole and separate property”.  Taking title in this way will almost always require a second deed from the spouse quitclaiming or relinquishing all claims to the property. Finally, everybody has the opportunity to take advantage of trusts. Trusts are most commonly used for probate avoidance, everyone in North America has seen an ad for a living trust seminar at this point, and that’s what they are talking about. Title in this way is held “A and B, Trustees of the A&B Trust dated March 8, 2012”.  This means the trust, not you, is the owner. But there’s more to trusts, especially for family groups or investment groups. They can take advantage of a “title holding trust” which is sort of a living trust with the bells and whistles stripped out. The advantage to a title holding trust is that the ownership is not a matter of public record, and only a single signature, the trustee, is required to transfer title. These usually are titled something like “Tommy Trustee, Trustee of the 123 Main Street Trust, dated March 8, 2012”. This approach makes a lot more sense that tenancy in common in many cases. For more information on any of this, please contact our office.