Joint tenants vs community property with right of survivorship—what’s the difference? Joint tenancy and community property with the right of survivorship is a popular ownership option for property ownership between two or more co-owners. But which is best for you? Keep reading to find out!
What is a joint tenant?
A joint tenancy is a legal arrangement in which two or more people own a property together. In this arrangement, each joint tenant has equal rights and obligations.
For example, if an unmarried couple purchases a home together and has a domestic partnership, they can opt for joint tenancy. The deed to the property will name both people as joint tenants, so each owner will have a claim to the property while sharing the benefits.
What is community property with right of survivorship?
Community property with the right of survivorship is a legal term allowing two spouses to share assets during their marriage equally. In the case of death, the assets would be passed on to the other spouse without going through probate.
In states that recognize community property with the right of survivorship, this method ensures that both people own all assets equally, with the assurance that half of their property or assets will go to the surviving spouse if they pass away. States that currently allow community property include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
Joint Tenants Vs. Community Property With Right Of Survivorship
Joint tenancy and community property may sound like the same thing, but there are subtle differences. In both of these arrangements, the partner that outlives the other will automatically receive the deceased person’s property interest. However, these two types of ownership are taxed differently in the event of a person’s death.
In joint tenant agreements, the money from the sale of the property would be subject to capital gains tax. In contrast, in community property with survivorship rights, the proceeds from the sale of the property would not be subject to capital gains.
How to set up joint tenancy?
Before setting up a joint tenancy, four conditions are required:
- The co-owners must obtain the property at the same time.
- The co-owners must have the same title to the property.
- Each person must have an equal share of the property.
- The co-owners must have an equal right to possess the whole property.
To create a joint tenancy, the tenants must declare their joint tenancy on the title document or deed of the shared property. When putting their names on the title, they must also indicate that they are holding the asset as “joint tenants with a right of survivorship.”
How to set up community property with right of survivorship?
Before setting up community property with the right of survivorship, you must ensure that you are in a community property state. In order to set up this agreement, all you have to do is use the correct language when drafting the title document.
For example, in California, this document should have the following clause: “Couple take title to property as Community Property with Right of Survivorship.” An attorney can help ensure that the correct legal language is used. So make sure you get legal advice when setting up community property ownership.
What are some of the benefits of community property with right of survivorship?
The main advantage of community property with the right of survivorship is that the surviving spouse becomes the property owner upon their spouse’s death without the property having to pass through probate. However, there are several other benefits, including tax advantages.
1. Community property with right of survivorship avoids probate
If you’ve set up community property with the right of survivorship, then after one spouse dies, the deceased spouse’s interest in the property will automatically transfer to the surviving spouse and they will be the sole owner of the property. You do not have to go through a probate process or to probate court to make the transfer.
In addition, transferring the title to the surviving owner is fairly simple. While the exact steps depend on the property type, the general process involves the new owner filling out a form and presenting it with a death certificate to whoever keeps the ownership records. This could be a bank, the county land records office, or the DMV.
2. Community property with right of survivorship is joint ownership
Community property states allow married couples to hold their property as community property with the right of survivorship, meaning that the surviving spouse is guaranteed to receive the deceased spouse’s share in the property. In this way, community property with the right of survivorship is a form of joint ownership. Joint ownership and community property with the right of survivorship have the same end goal: when one spouse dies, the other spouse automatically receives the deceased spouse’s share of the property.
3. Community property with right of survivorship gives both partners an equal say in decisions
Agreeing to community property with the right of survivorship ensures that you and your partner own all assets equally. In a legal sense, this means you will both have an equal say in decision-making regarding your home.
4. Community property with right of survivorship allows for asset protection
Community property with the right of survivorship not only ensures that you and your partner have equal ownership of your assets, but also guarantees that your property will be passed on to you in the event of your partner’s death. It also provides asset protection during a divorce; because you and your spouse have 50/50 ownership, you would split the property’s value 50/50 in the case of a divorce.
5. Community property with right of survivorship can help avoid estate taxes
One of the main advantages of community property with the right of survivorship is the tax benefits. When a property is held in community property with the right of survivorship, then sold after the spouse’s death, the proceeds from the sale would be exempt from capital gains tax.
What are the best ways to help ensure that my community property with right of survivorship is set up correctly?
Check out the steps below to ensure your community property is set up correctly!
1. Check your state’s laws on community property with right of survivorship
Only nine states allow community property with the right of survivorship. These states include:
Click on your state above to verify the community property laws in your area!
2. Get the proper documents in order
When establishing community property with the right of ownership, you must indicate this on your title document with the proper wording. Check your state website to verify the language needed on your title document. If you transfer the title after your spouse has died, you will usually need to fill out a straightforward form, along with a death certificate, to the entity in charge of record keeping, like a bank or county land records office.
3. Choose the best type of ownership for your situation
There are three main ways to co-own a property with the right of survivorship:
- Survivorship community property
- Joint tenancy with the right of survivorship
- Tenancy by the entirety
Survivorship community property
If you are married and own property in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin, then you are eligible to have a community property with the right of survivorship. In this arrangement, when one spouse dies, the other automatically takes full ownership of the asset.
Joint tenancy with the right of survivorship
In a joint tenancy with the rights of survivorship, the property will automatically pass to the surviving tenant in the event of the other partner’s death. This isn’t only for married couples; unmarried couples also have this option. This arrangement often works well for couples who have valuable shared assets.
Tenancy by the entirety
In some states, married couples can hold the title in “tenancy by the entirety,” rather than a joint tenancy. This arrangement works very similarly to joint tenancy, but can only be used by married couples. However, this is not a 50/50 ownership. Instead, each spouse will own 100% of the entire property.
What are some of the best ways to use community property with right of survivorship?
There are three primary ways to use community property with the right of survivorship: joint tenancy, tenancy in common, and community property with survivorship rights.
Joint tenancy is an option for both a married person and unmarried couples. In a joint tenancy, the property will automatically pass to the surviving joint tenant in the event of the other partner’s death. This arrangement usually works well for couples who have acquired vehicles, real estate, bank accounts, real property, or other valuable property.
Tenancy in common
As tenants in common, two owners can have an equal ownership interest or own different percentages of a property. For example, one tenant could own 60% while the other could own 40%. Tenants in common can individually sell their portion of the property. One tenant could retain their half while the other could sell their interest.
If one owner passed away, their interest would go toward their heirs, while the other owner would still retain their portion. Obviously, this could lead to some awkward situations in which the remaining joint tenant doesn’t know the new owner at all!
Community property with right of survivorship
Community property with the rights of survivorship was created to combine the perks of joint tenancy with the tax benefits of community property. After the death of a spouse, this property would be exempt from capital gains tax. In addition, community property is a massive tax benefit due to a factor called the “double step-up basis.” In this case, when a spouse dies, both of your shares “step up” to the home’s current value.
How can I protect my ownership rights in my community property with right of survivorship?
If you and your partner jointly own community property with the right of survivorship, then your ownership rights are already protected. This arrangement will ensure that, if your spouse dies, you will receive your spouse’s property share. If you’ve agreed to this arrangement, you may not pass your property on to anyone other than your spouse in a will.
Some common questions about community property with right of survivorship?
Here are some common questions people ask about community property with right of survivorship…
What are the drawbacks of community property with right of survivorship?
The main disadvantage of community property with the right of survivorship is that if a spouse dies having willed the community property to someone other than their spouse, the gift may be deemed as invalid.
How do you create a community property with right of survivorship agreement?
To create a survivorship community property agreement, you simply need to put the right words on the title document, which differs between states. For example, in Arizona, you would need to state on the title that the property is a “community property with right of survivorship,” while in Wisconsin, you would need to note that it is a “survivorship marital property.”
What happens to your community property with right of survivorship if you divorce?
If you get a divorce, your community property will be divided equally between you and your spouse. Since you both own the property half of the property, you will split the property value equally.
Joint tenancy and community property with survivorship rights are all different ways of owning a property with someone else. In this article, we went over the differences between joint tenants vs community property with right of survivorship so hopefully, you can make the best decision for your situation. There are pros and cons to each type of ownership, and it really depends on your personal situation as to which is best for you. If you’re not sure which type of ownership is right for you, it’s best to consult with an experienced real estate attorney who can help guide you through the process.