During our proprietary “Critical Actions Roadmap™ – Discovery Meeting” with new clients, I raised the question about how their beautiful home in La Jolla was titled. They looked at each other, shrugged their shoulders and collectively said, “Gosh . . . we have no idea!” Later, we determined that their home was held – as almost every home is without exception that we have examined – in “joint tenancy with right of survivorship.” (JTWROS for short.) Their question to me at the time may be the same you are asking now reading this article . . . “Does it matter?” And, if not JTWROS, then how should it be titled instead? If you live in a community property state – or one of three states that allow you to choose community property status – how you title your assets can make a HUGE difference at the death of the second owner to die. It can literally save hundreds of thousands – even millions of dollars in taxes. Who knew? Saving taxes by how we title our assets . . . “Imagine That™”!

What Are My Options?

“Tenants In Common:”

This form of property ownership is most used when two or more people who are not married to each other own property together. If, for example, Joe and his sister Jane take title to real estate as tenants in common, they will each own an undivided portion of the property. At any time, Joe or Jane may sell or lease their percentage of the real estate to someone else.

At death, the deceased tenant’s portion of the asset gets something called a “step-up in basis.” This means that the “basis” is now equal to the fair market value of the asset as of the date of death. So what? This means that the heir(s) receiving the deceased tenant’s share of the asset could sell the inherited asset with the stepped-up basis the next day – and pay $0 in capital gains taxes!

Three other things to note:

  • Jane does NOT get a step-up in her basis in the asset if Joe dies first . . . only the portion that Joe owned in his name at death gets the stepped-up basis
  • The property titled as tenants in common is part of Joe’s estate and the Probate Court will become involved – with all its costs and frequent delays
  • Perhaps most unsettling is the “step-up in basis” rule is under attack by the Biden administration . . . so stay tuned for updates on this specific topic!

“Joint Tenants With Right Of Survivorship:”

Joint tenants with right of survivorship is by far the most popular way to title assets with multiple owners as it avoids the necessity of going through Probate Court to transfer title when a joint tenant dies. You can have two or more joint tenants owning an asset. When one joint tenant dies, the surviving owner(s) automatically receive the deceased owner’s share of the joint tenancy property or asset.

An example of a joint tenancy would be Mary and her daughter Sara owning a car as joint tenants with right of survivorship. If Mary dies, Sara automatically receives her mother’s half interest in the vehicle. Sara will simply fill out a form with the state motor vehicle department to have the vehicle registered in her name alone. No need for Probate Court and its delays and costs.

Note, however, that while the first joint tenant gets a stepped-up basis in the asset, the surviving joint tenant(s) do NOT get an increase in their basis. Thus, if the property has appreciated in value and is sold, the surviving joint tenant(s) will likely have a federal capital gains tax to pay – and perhaps a state income tax (such as in California) on any gains from their original basis. The heirs of the deceased joint tenant will only pay taxes on gains in the asset’s value since the time of death.

“Community Property:”

In a community property state, most property acquired by you or your spouse during the marriage is automatically considered community property. A few exceptions to this rule include property acquired before marriage, assets received by one spouse during the marriage by gift or inheritance, and assets purchased using funds from a spouse’s separate property.

Example: Larry and June are married and buy a home in California. They take title to the home as community property and not as JTWROS. When Larry or June dies, the surviving spouse will receive a “double step-up” in basis. A “double step-up” in basis means the surviving spouse’s basis receives a step-up to fair market value just as their deceased spouse’s share received! This “double step-up” can reduce or eliminate capital gains taxes because the basis is now the total fair market value as of the date of death of the first spouse to die. This is a tremendous planning benefit as not uncommonly, after the death of the first spouse, the surviving spouse may choose to sell the home . . . to either downsize or move closer to their children, etc. With the stepped-up basis on both halves of the estate, their likely will be little – if any – tax to pay.

Note: If the property was their personal residence, there is an additional exemption of $250,000 of capital gains exempted for each spouse . . . the so-called Section 121 Exemption (under Internal Revenue Code Section 121) . . . if the couple have used the property as their primary residence for at least two of the last five years.

Unlike the joint tenancy form of ownership, when holding title in community property, ownership of the spouse’s interest in the property can be gifted to others in their Will or Living Trust. For example, Larry’s Will could say his community property share in the home will go to his/their daughter.

The major drawback of holding property as community property is that the probate process will be required. The good news, however, is the property can be distributed through “fast track” probate, which is simpler and much faster than the usual, drawn out probate process.

The community property form of title is only available to married couples in a community property state. In addition to California, there are eight other states which have community property laws:

  • Arizona
  • Idaho
  • Louisiana
  • Nevada
  • New Mexico
  • Texas
  • Washington
  • Wisconsin

In addition to covering a married couple, community property laws in the following three states also apply to registered domestic partners:

  • California
  • Nevada
  • Washington

There are also three states which permit married couples to opt into community property rules or designate specific assets as community property if they so choose:

  • Alaska
  • South Dakota
  • Tennessee

“Community Property With Right of Survivorship:”

Here’s the big news! If you live in California, you and your spouse (or registered domestic partner) may avoid Probate Court by holding title to property as “community property with the right of survivorship.” This option has been available to Californians since July 1, 2001, under Section 682.1 of the California Civil Code. Several other community property states have also adopted the community property with right of survivorship title, too:

  • Alaska
  • Arizona
  • Idaho
  • Nevada
  • Wisconsin

Holding title in community property with right of survivorship in California provides married couples (or domestic partners) with the benefits of joint tenancy AND community property:

  • The Probate Court process is avoided
  • The surviving spouse will inherit the deceased spouse’s community property interest in the property
  • Importantly – the surviving spouse receives a double step-up in basis in the property

Conclusion: Make Sure You Choose the Best Form of Title for the Property You Co-Own

Based upon the above discussion, you now know that how you hold title to property with another person matters. A summary of the four options for Californians are in the table below:

Form of Title Probate Required? Can Ownership be Willed Away? Single or Double Step-up in Basis?
Tenants in Common Yes Yes Single
Joint Tenancy No No Single
Community Property  Yes, but it’s fast-tracked Yes Double
Community Property WROS No No Double

If you hold or will hold property with another person, you need to remember the various issues we have outlined in this article. And, if you now realize that the title for assets you presently own needs to be changed . . . good news again! While the process of changing how you hold title depends on the type of asset held, the process of changing title is relatively easy and does not trigger a taxable event. If, for example, the property in question is real estate, a new deed will need to be signed and filed with the appropriate county recorder’s office; do consult with a real estate attorney to make sure the appropriate information on the deed is properly completed and recorded.

Will you soon be acquiring a significant asset with at least one other person and like to discuss your best options? Perhaps you would like a broader conversation about the potential changes to income, capital gains, federal estate taxes – step-up in basis rules – or how to sell assets and reduce, defer and even eliminate taxes on the sale of appreciated assets? We offer a 20-minute complimentary conversation about your situation and circumstances. Who knew that something as basic as how to title assets could lead to unnecessary taxes, delays and other costs? What else can we find that will help you as much or more? Finding planning tips that no one else has discussed with you before . . . “Imagine That™”!

Imagine That™! is a complimentary monthly newsletter provided by Wealth Legacy Group®, Inc. that addresses various topics of interest for high-net-worth and high-income business owners, professionals, executives and their families. 

R. J. Kelly, Wealth Legacy Group®, Inc. – August 2021

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COURTESY OF

R.J. Kelly  ChFC, CLU, IAR, RICP. CAP, MSFS, AEP, CEPA Wealth Legacy Group

R. J. Kelly

Founder & Chief Visionary Officer

R. J. Kelly is Founder and Chief Visionary Officer of Wealth Legacy Group®, Inc. in San Diego, California, a company specializing in the diverse needs of closely-held business and professional families. Creator of the Wealth Legacy Assessment™ and the Critical Actions Roadmap™, R. J. and the WLG “tribe” develop comprehensive plans that maximize investment and asset growth, mitigate risk, create clarity in family legacy & issues of philanthropy, and facilitate business succession and exit strategies. He also Co-Founded and was Program Manager for twelve years of the non-profit, The Center for Wealth & Legacy™, an organization which presented over fifty community events, including the annual “Lasting Legacy & Inspiration Awards™” and the tri-annual “Leadership Insights Forum™”.

R. J. has been in the financial services industry since 1977. He is a Chartered Life Underwriter®, Chartered Financial Consultant®, Retirement Income Certified Professional®, a Chartered Advisor in Philanthropy®, has a master’s in Financial Services with an emphasis in taxation, and is an Investment Advisor Representative of Wealth Legacy Group®, Inc., an independent Registered Investment Advisor. Additionally, he has earned the Accredited Estate Planner (AEP®) designation recognizing a graduate level specialization in estate planning, and the Certified Exit Planning Advisor designation, an executive MBA-style program that trains and certifies qualified professional advisors in the field of exit planning for business owners. R. J.’s latest education is the Wealth Management Certified Professional designation, which provides training in the intersection of retirement planning and wealth management skills to address the complex needs of financially successful clients.

He is nationally recognized for his technical skills in:

  • tax
  • estate planning
  • business succession
  • national and international risk management
  • wealth/asset appreciation
  • executive benefits
  • charitable strategies

As well, R. J. has been regularly called upon as an expert witness in various litigation matters. Further, as a Life Coach™ and accredited Interplay™ facilitator, he is skilled in handling delicate interpersonal matters and facilitating family communication.

R. J. is a frequent speaker and author. Various publications such as the San Diego Union Tribune, LA Times, Yahoo Finance, Round the Table Magazine, San Diego Magazine, San Diego County Physician’s Magazine, Life/Health Pro, Insurance Forum, have run feature articles on R. J. or published articles by him, to name just a few.

Speaking audiences have included the: Vistage International Conference and various Vistage CE groups; the Strazzeri/Mancini Gathering; Advisors in Philanthropy National Conference; Nothing Bundt Cakes National Conference; The Dwyer Group Annual Conference; Main Platform – Million Dollar Round Table Annual Meeting; numerous NAIFA (National Association of Insurance & Financial Advisors) State conferences; and many more. He was featured on the PBS series “The Financial Advisors”, for three years was co-host of the San Diego radio program, “The Wealth Building Hour” and was a guest speaker on the American College’s Wealth Channel program.

R. J.’s interests include a commitment to being a wise and fun husband, dad, grandfather, performing periodically in a contemporary Christian band, and being active in community, church and international volunteer work. He has traveled to Guatemala, Mexico, Myanmar, Cambodia, Vietnam and Russia on various volunteer and humanitarian projects. He has raised over $30,000 to help Cambodian landmine victims and the Cambodian Children’s Fund. An eight-time marathoner, R. J. has raised thousands of dollars for Leukemia-Lymphoma research through his running. His life goals include facilitating $1 billion for charity (crossing the $100M mark in August 2012 and well underway to reaching the second $100 million), volunteering internationally 2-4 weeks/year, and travels to Bhutan, Iguaçu Falls, Machu Picchu, Tibet, India and the Amazon among many other places!

Most memorable life events thus far include a tail-hook landing and catapult take-off from the aircraft carrier, USS Abraham Lincoln, trekking in Nepal to an altitude of over 18,000 feet, performing solo to an audience of 7,500+, speaking for an audience of 13,000+, the individuals met through and running of various marathons, the lasting impact of a wise, loving and godly mother, and being married to my extraordinary wife, Vymean, a survivor of the killing fields of Cambodia, and one equally committed to making the world a better place.