Taking title to a home can seem like a boilerplate event during escrow, but it is very important. The prime question is how you take the title.
Taking Title When You Buy
If you are a first-time buyer, you are probably wondering what taking title refers to. It is not the act of accepting a piece of paper from the seller. Taking title refers to who is listed on the title and HOW they are listed. If you are not married and are buying the home alone, you can stop reading now because you simply take the title in your own name. If you are married or buying the property with another person, things get a bit complex.
Most buyers take the title in one of three ways – joint tenancy, tenants in common or as community property. Here is a closer look at each.
Joint tenancy is a popular method of taking title. Joint tenancy simply is a co-ownership situation where the purchasing parties are both listed on the title. The advantage of this form of ownership is each person on the title has the right of survivorship, meaning that if one of the owners dies, the title passes automatically to the surviving owner. Joint tenancy also offers tax benefits in the form of a stepped-up basis. It is beyond the scope of this article, but the general idea is that the surviving owner gets to step up the cost of the home, which saves on capital gains taxes.
Tenants in common are essentially partnerships to own a property. They are generally disfavored because of tax issues.
Taking the title as community property occurs often, but the buyers often do not realize it. If you are in a community property state, such as California, you pretty much take title as community property unless you hire a lawyer to find a way not to. Community property states have an overriding policy that funds from the estate of a married couple, not to mention assets, are jointly owned by both regardless of anything in writing. There are, however, some advantages to this approach. Upon the death of one spouse, the other gets a major stepped-up basis on the cost of the home. When the property is sold, this results in substantial savings on capital gains.
So, which title should you choose when buying a home? There really is no one correct answer. You simply need to analyze your specific circumstances to make the best choice.