When a person buys a house, rental property or vacation home, he or she takes title to the property. This examines and compares the different ways to take title to real estate in Arizona.
To take title as community property, the title holders must have a valid marriage. Each spouse holds an undivided one-half interest in the estate. One spouse cannot partition the property by selling his or her interest. The signatures of both spouses are required to convey title or encumber the property. Each spouse can devise (will) one-half of the community property. Upon death, the estate of the decedent must be “cleared” through probate, affidavit, or adjudication (court action). Both halves of the community property are entitled to a stepped-up tax basis as of the date of death.
Joint Tenancy with Right of Survivorship
The parties need not be married to take title as joint tenants, and there may be more than two joint tenants. Each joint tenant holds an equal and undivided interest in the estate. There is unity of interest. One joint tenant can partition the property by selling his or her joint interest. The signatures of all joint tenants are required to convey or encumber the whole. The estate passes to the surviving tenant or tenants outside of probate. No court action is required to clear title upon the death of a joint tenant. The deceased tenant’s share is entitled to a stepped-up tax basis as of the date of death.
Community Property with Right of Survivorship
This method of taking title combines the most favorable characteristics of the first two methods. Because title is taken as community property, the parties must be married. As with the first method (community property without the right of survivorship), each spouse holds an undivided one-half interest in the estate, one spouse cannot partition the property by selling his or her interest, and the signatures of both spouses are required to convey title or encumber the property. Unlike the first method, however, no court action is required to clear title upon the first death (this feature is common to joint tenancy with right of survivorship). Both halves of the community property are entitled to a stepped-up tax basis as of the date of death.
Tenancy in Common
The parties need not be married to take title as tenants in common, and there may be more than two tenants in common. Each tenant in common holds an undivided fractional interest in the estate. The fractional interests can be disproportionate (e.g., 20% and 80%; 40% and 60%; 20%, 20% and 60%; etc.). Each tenant’s share can be conveyed, mortgaged or devised to a third party. The signatures of all of the tenants are required to convey or encumber the whole. Upon death, the tenant’s proportionate share passes to his or her heirs. The estate of the decedent must be cleared through probate, affidavit, or adjudication. Each share has its own tax basis.
Arizona is a community property state. Property acquired by a husband and wife is presumed to be community property, unless legally specified differently.
Title may be held as “sole and separate.” If a married person acquires title as sole and separate property, his or her spouse must execute a disclaimer deed to avoid the presumption of community property.
Parties may choose to hold title in the name of an entity. The entity holding title may be a corporation, limited liability company, partnership, or a trust.
Each method of taking title has certain legal and tax consequences. Accordingly, the reader is encouraged to obtain competent legal and tax advice before taking title to his next house, rental property, or vacation home.
The above article is an excerpt from Estate Planning in Arizona: What You Need to Know, 2nd Edition (Wheatmark, 2019), by Donald A. Loose, republished with the author’s permission.
Disclaimer: Laws change constantly. Specific legal advice should be obtained regarding any legal matter. The information contained on this website does not constitute legal advice and no attorney-client relationship is created.
Don likes to target shoot, scuba dive, and pilot airplanes. Most recently, he has been working on his golf handicap. Don enjoys writing, reading, and spending time with his wife, twin sons, and golden retriever, Lucy.