Holding title in this manner allows one the best of both worlds. It gives one the benefit of a stepped up tax basis (more about this later) and it allows the property to pass directly to the surviving spouse, without the cost, work, and trouble of probate. The thing that's new here is "the right of survivorship" - the fact that the property passes automatically to the surviving spouse. Note: With the older form of community property, (without the right of survivorship) the property could pass to a spouse without probate if it was willed to them. The right of survivorship makes this automatic, with or without a will.
In the past, with the older form of community property, (before the right of survivorship was added by the legislature) one did receive the stepped up basis for taxes, but did not receive the right of survivorship.
What is "stepped up basis" (the type of tax
treatment that comes with either form of community property)? Answer: "Stepped up
basis" means that the surviving spouse receives the property with it's entire tax
basis "stepped up" to the fair market value at the point that the spouse passes
Tax-wise, the difference between using community property (of either kind), versus joint tenancy, can be very substantial - in some cases, tens of thousands of dollars, even hundreds of thousands of dollars. (To see an example of the tax differences, visit this website: http://www.help4srs.com/law/capgn_ex.htm)
The obvious benefit of using this new manner of taking title is that one receives the tax benefits of community property while avoiding probate, even in the absence of a will. Note: The tax benefits of community property won't solve all tax problems. If your estate is large enough, consult with an attorney to create an appropriate trust. Please check with expert legal, tax, and estate counsel before making any final decisions on this subject. If I may help you regarding any real estate matter, from marketing your home to your tenth rental property, please do phone me today at 707 577-8200!
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