Ownership of Real Estate – Taking Title

When making a purchase of real estate in Arizona, you will be asked by your Escrow Officer to fill out a legal document indicating how you and everyone in your purchasing side (whether spouse, family, business partners, etc.) intend to take ownership of said real estate.

This is a very important, critical decision for you, and would be wise to consult your attorney and tax consultant to help make your ownership the most beneficial to you and everyone affected by this decision. Each method of taking title has certain legal and tax consequences. Don’t wait to ask your Escrow Officer for advice, because they can not give it to you. Consult legal and tax experts first. The article’s information is a courtesy only.

Note that Arizona is a community property state. Property acquired by a husband and wife is presumed to be community property unless legally specified otherwise. Title may be held by one of the spouses as “Sole & Separate”. If a married person acquires title to the property as sole and separate, the other 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 (corporation, LLC, a partnership – general or limited, or as a Trust).

Besides Sole & Separate, there are four other ways of taking title. Here are the guidelines:

Community Property

Requires a valid Marriage.
Each spouse holds an undivided one-half interest in the estate.
One spouse can not partition the property by selling his or her interest.
Requires signatures of both spouses to convey or encumber.
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.
Both halves of the community property estate are entitled to a “stepped up” tax basis as of the date of death.

Community Property with Right of Survivorship

Requires a valid marriage.
Each spouse holds an undivided one-half interest in the estate.
One spouse can not partition the property by selling his or her interest.
Requires signatures of both spouses to convey or encumber.
Estate passes to surviving spouse outside of probate.
No court action required to “clear” title upon the first death.
Both halves of the community property estate are entitled to a “stepped up” tax basis as of the date of death.

Joint Tenancy with Right of Survivorship

Parties need not be married; may be more than two Joint Tenants.
Each Joint Tenant holds an equal undivided interest in the estate, unity of interest.
One Joint Tenant can partition the property by selling his or her joint interest.
Requires signatures of all Joint Tenants to convey or encumber the whole.
Estate passes to surviving Tenant(s) outside of probate.
No court action required to “clear” title upon the death of Joint Tenants.
Deceased Tenants share is entitled to a “stepped up” tax basis as of the date of death.

Tenancy In Common

Parties need not be married; may be more than two (2) Tenants In Common.
Each Tenant In Common holds an undivided fractional interest in the estate, e.g. 20% & 80%; 20%, 20%, 40%, etc.
Each Tenant’s share can be conveyed, mortgaged, or devised to third party.
Requires signatures of all Tenants to convey or encumber the whole.
Upon death, the Tenant’s proportionate share passes to his or her heirs by will or intestacy.
Upon death the estate of the decedent must be “cleared” through probate, affidavit, or adjudication.
Each share has its own tax basis.

Original content of this article was provided by American Title Service Agency of Scottsdale Kierland. (602) 622-2252