Vesting
The following is for informational purposes only and in no way constitutes a recommendation. If you need advice on how you should acquire title, it is suggested to consult a tax specialist and/or an attorney. How title is vested has significant tax and legal consequences. Real property purchasers are urged to carefully consider this decision prior to closing and to seek proper legal advice for any questions.
Included in the buyer’s opening escrow package is a vesting form, in which the buyer indicates how they intend to hold title to the property being purchased. The manner in which title or ownership to real property is held is generally referred to as “vesting.” The form of ownership taken determines who may sign various documents involving the property and future rights of the parties to the transaction pertaining to, among other things, real property taxes, income taxes, inheritance and gift taxes, transferability of title, exposure to creditors’ claims, and probate implications in the event of death.
Note: Under current law, California recognizes same-sex relationships that are legally performed or entered into in California and in other states and other countries. This recognition includes same-sex marriages and other types of legal unions that are similar to registered domestic partnership status. Although “registered domestic partner” may be used in the below examples, the term “domestic partnership” will be used to include both California registered domestic partnerships and all non-marital legal unions that are recognized in California (e.g., civil unions).
Sole Ownership
A Single Person, an Unmarried Person, or a Widow or Widower
A person who is not legally married or in a domestic partnership.
Example: John Williams, a single man
A Married Person as His/Her/Their Sole and Separate Property
A Domestic Partner as His/Her/Their Sole and Separate Property
A person who wishes to acquire title in his/her/their name alone. The title company insuring title will require the spouse or domestic partner of the person to specifically disclaim or relinquish his/her/their right, title, and interest to the property. This establishes that both spouses or both domestic partners want title to the property to be granted to one spouse or partner as that person’s sole and separate property.
Examples: Jane Williams, a married woman, as her sole and separate property; Jane Williams, a registered domestic partner, as her sole and separate property
Co-ownership
Community Property
Property owned together by married persons or by domestic partners. Community property is distinguished from separate property, which is property acquired before marriage or before a domestic partnership by separate gift or bequest, after legal separation, or which is agreed in writing to be owned by one spouse or domestic partner.
In California, real property conveyed to a married person or domestic partner is presumed to be community property, unless otherwise stated (e.g., property acquired as separate property by gift, bequest, or agreement). Since all such property is owned equally, both parties must sign all agreements and documents transferring the property or using it as security for a loan. Each owner has the right to dispose of his/her/their one half of the community property by will.
Examples: John Williams and Jane Williams, husband and wife, as community property; Jane Williams and Linda Williams, registered domestic partners as community property; Jane Williams and Linda Williams, who are married to each other, as community property
Community Property with Right of Survivorship
A form of vesting title to property owned together by spouses or domestic partners. This form of holding title shares many of the characteristics of community property but adds the benefit of the right of survivorship similar to that of joint tenancy. Possible tax benefits for holding title in this manner include that on the death of an owner, the decedent’s interest ends and the survivor owns all interests in the property.
Examples: John Williams and Jane Williams, husband and wife, as community property with right of survivorship; John Williams and Bill Williams, husband and husband, as community property with right of survivorship
Joint Tenancy
A form of vesting title to property owned by two or more persons, who may or may not be married or domestic partners, in equal interests, subject to the right of survivorship in the surviving joint tenant(s). Title must have been acquired at the same time, by the same conveyance, and the document must expressly declare the intention to create a joint tenancy estate. When a joint tenant dies, title to the property is automatically conveyed by operation of law to the surviving joint tenant(s). Therefore, joint tenancy property is not subject to disposition by will.
Example: John Williams, a married man, and Jane Anderson, a single woman, as joint tenants
Note: If a married person or domestic partner enters into a joint tenancy that does not include their spouse or partner, the title company may require the spouse or partner of the person acquiring title to specifically consent to the joint tenancy.
Tenancy in Common
A form of vesting title to property owned by two or more persons in undivided fractional interests. These fractional interests may be unequal in quantity or duration and may arise at different times. Each tenant in common owns a share of the property, is entitled to a comparable portion of the income from the property, and must bear an equivalent share of expenses. Each co-tenant may sell, lease, or will his/her/their share of the property.
Example: John Williams, a single man, as to an undivided 3/4 interest and Jane Anderson, a single woman, as to an undivided 1/4 interest
Other Ways of Vesting Title
A Corporation
A legal entity, created under state law, consisting of one or more shareholders but regarded under law as having an existence and personality separate from such shareholders.
A Partnership
An association of two or more persons who can carry on business for profit as co-owners, as governed by the Uniform Partnership Act. A partnership may hold title to real property in the name of the partnership.
Trustee(s) of a Trust
An arrangement whereby legal title to property is transferred by a grantor to a person called a trustee, to be held and managed by that person for the benefit of the people specified in the trust agreement, called the beneficiaries. A trust is generally not an entity that can hold title in its own name. Instead, title is often vested in the trustee of the trust, for example, Bill Smith, trustee of the Smith Family Trust.
Limited Liability Company (LLC)
A legal entity similar to both the corporation and the partnership. An operating agreement, which typically must be provided, outlines how the LLC functions and is taxed. Like the corporation, its existence is separate from its owners.