Married couples who take title to real property as joint tenants lose federal and state income tax adjustments, (known as a "step-up in basis"), that would otherwise be available at the death of the first spouse to die, if the property were held by them as husband and wife as community property. The income tax basis (in the part of the joint tenancy interest which is subject to estate tax at the joint tenant's death) is increased or decreased to fair market value at the date of death. On the death of the first spouse to die, the one-half interest belonging to the first spouse to die receives a new income tax basis equal to one-half of the property's fair market value at his or her death (known as a "step-up in basis").

If title is held by husband and wife as community property, the one-half belonging to the surviving spouse also receives an adjustment to its income tax basis (sometimes called a "double step-up in basis"). But if the married couple holds title as joint tenants, no such "double step-up in basis" will be made to the surviving spouse's one-half interest in the property. Thus, by taking title as joint tenants, a surviving spouse loses an advantageous tax adjustment at the death of the first spouse to die. Why is this? The answer simply is because the Internal Revenue Code says so. See IRC Sections 1014(b)(6) and 1014(b)(9).

As of July 2001, California law allows a new way for married couples to hold title to property as as husband and wife as community property with some of the features of joint tenancy. Consult your attorney about this new form of property ownership. To take advantage of this new form of property ownership, married couples must file a new deed after July 2001.

Please check with your estate planning attorney and financial professionals to ensure that the alternative you have chosen to take title to real property is the most beneficial one to you from an estate planning perspective.

DISCLAIMER: The above is intended as general information only. It does not constitute legal advice or a legal opinion regarding your particular situation. Only an attorney who has reviewed all of the pertinent facts and circumstances can render a competent legal opinion for your paticular situation. For individual planning and drafting of documents appropriate for you, see your estate planning attorney.

© Jennifer P. Cody, 2004