Question #1

Question:

I just heard that California recently passed a law that provides for something called "community property with right of survivorship". Can you tell me a little bit about it?

Answer:

On July 1, 2001, California Civil Code § 682.1 goes into effect, which establishes a new form of holding title known as community property with right of survivorship. This new form of ownership combines the survivorship rights of joint tenancy with the tax advantages of community property, and can be used in connection with conveyance instruments created on or after that date.

Typically, married couples will hold title either as joint tenants or as community property. Joint tenancy is a popular device for avoiding probate, since upon the death of one joint tenant the decedent's interest vests immediately in the survivor. There is no need for probate, because there is nothing to pass with the decedent's estate. Recording a simple document known as the Affidavit Death of Joint Tenant can be used to terminate the joint tenancy.

In contrast, there is no automatic right of survivorship with community property. The decedent's interest passes as part of his or her estate, and does not pass automatically to the spouse. It is only when the decedent dies without a will leaving property that would otherwise pass to his or her spouse under the laws of intestate succession, or dies with a will leaving the property to the spouse, that community property can pass without probate.

The main advantage to holding title as community property, however, is that upon the death of one spouse the entire property receives a step-up in basis for tax purposes. In contrast, if the spouses hold title as joint tenancy, only the decedent's one-half of the property will receive the step up in basis. This can make a significant difference in tax liability when the surviving spouse goes to sell the property.

The new community property with right of survivorship form of ownership combines the tax advantages of community property with the survivorship rights of joint tenancy. Civ. C. §682.1 provides that property held under this form of ownership will pass to the survivor, without administration, subject to the "same procedures as property held in joint tenancy". Technically, this would mean that the surviving spouse should be able to record an Affidavit of Death of Joint Tenant, although I would suspect that this document may be renamed when it is used to terminate title held as community property with right of survivorship.

In order to create this new form of ownership, the deed into the husband and wife must specifically state the vesting as "husband and wife as community property with right of survivorship". One unusual provision of this new law, however, is that the deed must also be signed or initialed by the husband and wife. Thus, whereas a deed usually only requires only the signature of the grantor in order to be valid, any conveyance deed that transfers title as "community property with right of survivorship" should have the signatures of both the grantors, and the husband and wife as grantees.