A New Form of Title Community Property
with Right of Survivorship

By Lawrence E. Green, CLTA President

Starting July 1, 2001, married couples in California will be able to vest real and personal property in a new form of title: community property with right of survivorship. The goal of the legislation was to establish the right of survivorship benefit while maintaining the favorable tax status of community property under federal tax law. The survivorship benefit will avoid the necessity of a probate court decree determining that joint tenancy property was in fact community property solely in order to get a stepped up basis for 100% of the property upon the death of a spouse. If the property is truly joint tenancy only ½ of the property gets a stepped up basis for tax purposes. The new law will also provide an opportunity for the use of an affidavit of death to satisfy title company underwriting requirements for the transfer or encumbrance of title by the surviving spouse.

The recent enactment of Assembly Bill 2913 ("AB 2913") added Section 682.1 to the Civil Code to provide that the community property of a husband and wife, when expressly declared in the transfer document to be "community property with right of survivorship," may transfer automatically without probate. The act also permits the right of survivorship to be terminated prior to the death of either spouse in the same way a joint tenancy may be severed.

The new law provides that the express declaration of community property with right of survivorship "may be accepted in writing on the face of the document by a statement signed or initialed by the grantees". However, there isn't a specific form for a statement for acceptance.

In fact, acceptance is permissive with the use of the word "may". The language of the new law only requires an express declaration in the transfer document. This makes sense because grantees, including spouses, typically do not sign the grant deed when acquiring real property.

The standard California Association of Realtors Residential Purchase Agreement and Joint Escrow Instructions (and receipt for deposit) was recently adopted for use and does not require that the manner of taking title be chosen at the time the offer is made. Rather, item number 12.B of the form provides: "Title shall vest as designated in Buyer's escrow instructions. THE MANNER OF TAKING TITLE MAY HAVE SIGNIFICANT LEGAL AND TAX CONSEQUENCES." The explanation of these consequences is necessary to assure that an informed choice is made at the time of purchase.

Increasing the choices for initial vesting of title increases the need for competent legal and tax advice to spouses who are acquiring property. Although community property with right of survivorship will often be the preferred method for taking title, each couple must evaluate their own situation before making a decision. The California Association of REALTORS® strongly advises its members that they should never advise on how to take title.

THE FOREGOING IS PROVIDED FOR GENERAL INFORMATION ONLY. FOR SPECIFIC QUESTIONS OR FINANCIAL, TAX OR ESTATE PLANNING, WE SUGGEST BUYERS CONTACT AN ATTORNEY OR CERTIFIED PUBLIC ACCOUNTANT.