On almost a weekly basis, our firm receives phone calls from clients about title transfers and changes in real property ownership. Many life events occur throughout our lifetime, and with that comes a change in the manner we conduct our affairs, including ownership of real property. Whether you are getting married, setting up a revocable trust, or forming a business entity, how you hold title to real property is important. If you are considering making a change in ownership of real property you own, consider the following before doing so:
1. Confirm Ownership and Chain of Title
When clients come to us to initiate a change in how title is held to their property, one of the first things we recommend is getting a Condition of Title Guarantee. A Condition of Title Guarantee is provided by a title company and costs anywhere from $400-$500. The guarantee provides the owner with a full report on the subject property based upon ownership, defects, and encumbrances against the property, and can be transferred and credited to the issuance of title insurance. The guarantee ensures that the client has a valid right to transfer title, and that the title received is absolute. While this is an added expense, we recommend the guarantee to help prevent future title issues which could result in extensive litigation, costing far more than the guarantee price. It also gives our clients peace of mind, knowing the transfer will be valid.
2. Check for Exclusions and Exemptions
Transfers of real property trigger several tax implications, but we will focus on two primary ones in this article. Prior to any transfer of title, owners should consider possible transfer tax exemptions and reassessment exclusions available to them under California law.
Under Revenue and Tax Code §11911-11930, there are several exemptions available to owners that will prevent them from having to pay transfer tax when the transfer document is recorded. These include transfers into or out of a trust, gift transfers, and dissolution transfers, to name a few.
Under Propositions 58/193, there are certain transfers that are excluded from property tax reassessment. These exclusions can be substantial because it can prevent an increase in property taxes paid. The exclusions include but are not limited to parent to child transfers, co-tenancy changes in ownership, and spousal transfers.
These two tax issues can be complex. The County Recorder requires specific forms and language to utilize the exclusions and exemptions. We recommend seeking the assistance of an attorney and CPA prior to any transfer in order to ensure you maximize your tax benefits.
3. Use Correct Type of Deed
Depending on the type of transfer, the type of deed used can vary greatly. Common types of deeds utilized in property transfers include Grant Deeds, Gift Deeds, Trust Transfer Deeds, Interspousal Transfer Deeds and an Affidavit of Death. Grant Deeds are by far the most common but knowing which deed to use in each situation is essential.
For example, if property is held in Joint Tenancy by two owners, and one of the owners dies, a Grant Deed is not the proper method to ensure title is transferred to the surviving owner. By law, when one Joint Tenant dies, that owner’s interest automatically transfers to the other owner(s), thus negating the need to record a Grant Deed. Instead, recording an Affidavit of Death Deed would be the next step to confirm title. Knowing which deed to use requires an in-depth knowledge of property ownership rights and tax implications, and we recommend seeking the advice of an attorney prior to selecting the type of deed you will use.
4. Determine Method of Holding Title
While knowing which type of deed to use is important for any transfer, how title is held is even more important. Especially in property owned by multiple people, the way the owners hold title will dictate the owners’ rights involving transferability of title, taxes, and rights of survivorship. Title can be in the name of the specific owners, or in the name of a business entity or trust. Each method of holding title comes with its own benefits and rights, and owners should be fully informed before deciding how to hold title to property.
Our firm practices real estate exclusively and has seen first-hand the impact of how title is held to property come into play in litigation. Simple differences between Joint Tenancy and Tenancy in Common can alter the way a case unfolds. Accordingly, as with other decisions regarding transfer of property, we recommend seeking legal advice before selecting how you will hold title.
5. Check County Recorder Requirements
Once the foregoing decisions have been made, owners must research the County Recorder’s specific requirements for property transfers in the county where the property is located. Many counties, especially in the Bay Area, have custom forms and rules concerning the recordation of deeds and property transfers. For example, the San Mateo County Recorder requires the filing of a Documentary Transfer Tax Affidavit with any conveyance document to help explain the nature of the transaction and the validity of the Documentary Transfer Tax exemption, if claimed. This is just one of many requirements counties enforce in transfers of ownership of real property in California.
In our experience in assisting clients with property transfers, County Recorders can be quite particular. With our clients’ property transfers, we utilize the expertise of a Registered Process Server to take the documents down to the County and record the documents to improve the likelihood of the recording being successful. With real property being a person’s most important asset, we take extra steps to ensure their asset is protected. If you are interested in information concerning property transfer or would like us to assist with a transfer of ownership, we would be happy to assist.