A New Form of Title: Community Property With Right of Survivorship

07/2001

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 ˝ 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.