PRIMARY HOMES
If you are married and own a primary home, chances are you own it as either “joint tenants” (JT) or “community property with rights of survivorship” (CPWROS).
Both are forms of joint ownership, so is there a difference?
Oh yes! A big difference.
In California, you get what’s called a “step-up in basis” when you inherit a property. Whether you get a single step-up in basis or a double step-up in basis is the question, and that depends on whether you own your home as JT or CPWROS. Generally, when one spouse passes away, the surviving spouse will get a single step-up in basis if the property was owned as JT but the same surviving spouse would get a double-step up in basis if the property was owned as CPWROS.
Read here to understand how a step-up in basis works and why you want to maximize this.
The problem with both of these approaches is that neither avoids probate when both owners pass away. Thus, a trust is the best form of ownership for a primary home, as long as your estate attorney knows how to also get you the double step-up in basis too (there is an IRS decision that may limit some trusts to a single step-up in basis, but this can be avoided with the right attorney).
INVESTMENT HOMES
If you have purchased a property for investment purposes and if it’s being rented, it’s always best to insert some asset protection into the equation. This comes most robustly through the creation of a limited liability company (LLC) that we can create for you. The state that we choose, and the members we include are given much thought, as there can be tremendous differences that come about from these decisions.
Many people wonder if their investment home should be titled in the name of their trust. The answer is that most living trusts don’t offer any asset protection for the current trustees and, as such, probably are not the right instruments to hold title for such assets. Rather, for our business clients, we re-title the interests of the LLC into the living trust, and create state-specific language to ensure that the trust has no issue being the owner of the LLC. This way, there is asset protection as well as probate avoidance, all wrapped into one.