This article presents the various vestings for holding title, the ownership rights reflected by the vestings and their termination by any right of survivorship on death of a co-owner.

Possession and transfer rights

All parcels of real estate have a recorded history. California’s real estate history began with its admittance into the Union, when the United States of America became the initial owner of all the land. Titles were “proven up” by individuals in federal courts or with government agencies who issued certificates of title based on comparable rights held by the individuals under prior Spanish, Mexican or California sovereign law. This is how the recorded history of title to each parcel in California began. Parcels are now identified by the assessor of each county by a parcel number.

A conveyance by the vested owner of a parcel effectively transfers title to the next owner if the person conveying “title” holds title under a prior conveyance transferring title into his name. Thus, for each parcel a linkage exists in title from the beginning of the state of California to the present. The “chain of title” for a parcel reflects a conveyance by each person who previously took title to the property, from themselves to the next vested owner of title, and on to the present holder of title.

The initial focus for an analysis of a transfer of title in a sales transaction is on the person who is conveying title, not the new owner who is taking title. If the person conveying does not hold a good and marketable (insurable) title to the property and have the authority to convey it, the transfer to the new owner is defective, if not ineffective.

Today, the ability of the current owner to transfer title is the concern of the title companies. Title insurers issue policies covering the risk regarding whether the transfer of the ownership interest bargained for by the new owner has occurred. Title company analysis of this conveyancing risk is based on the nature and validity of the present owner’s vesting, usually established when that owner took title.

The vesting used to take title when a person acquires ownership establishes the rules controlling his later conveyance of an interest in the property to another.

Thus, the text of this chapter focuses on the vesting used to acquire an interest in real estate under a deed, lease or trust deed.

For example, consider a buyer who has entered into a purchase agreement and escrow instructions. The purchase agreement states the buyer will take title in the condition agreed and as insured by a title insurer under a policy of title insurance. The precise vesting the buyer will use does not need to be stated in the purchase agreement.

However, escrow will include the exact wording of the vesting to be used by the buyer in the mutual instructions signed by both the seller and buyer.

The vesting chosen by the buyer is never a condition of the purchase agreement or escrow. The vesting on conveyance may be chosen (or unilaterally altered) by the buyer at any time prior to closing (but in sufficient time for preparation of the deed, signature by the sellers and acknowledgement by a notary prior to the date scheduled for closing).

Escrows prefer to draft the deed to be signed by the seller when escrow instructions are prepared. Thus, an early decision by the buyer about his vesting is necessary to accommodate the escrow process.

Hence, the buyer’s agent needs to possess a working knowledge of vestings to be able to advise the buyer on the vestings available to the buyer so the agent is able to aid in the selection of the vesting desired before dictating instructions to escrow.

A person or persons take title

Real estate is owned by a person or persons, who by definition is either an individual (or individuals) or an entity, such as a corporation, limited liability company (LLC) or partnership. Trusts are not entities in California unless they have been qualified as a corporation by the Department of Corporations. Thus, the beneficiary of the trust relationship, be it an individual or an entity, is the owner of the real estate in spite of the vesting being in the name of a third person as trustee.

Further, ownership by an individual or entity is classified as either:

  • a sole ownership, legally called an ownership in severalty [Calif. Civil Code §681]; or

  • a co-ownership of two or more persons.

Sole ownership is reflected by use of a vesting naming an individual or entity as the one person entitled to ownership of the entire property described in the conveyance transferring title to that person. The one person named in this vesting context could be a married individual who owns property as the separate property of the married individual.

Co-ownerships exist for individuals in two fashions:

  • as vested co-owners on title; or

  • as co-owners of an entity, which is itself the vested owner holding title to the property.

Co-owners vest title in their individual names under one of only four types of ownership available for property located in California:

  • as joint tenants;

  • as tenants in partnership;

  • as tenants in common; and

  • as community property, with or without the right of survivorship. [CC §§682, 683]

No other co-ownership vesting exists for individuals. Thus, the trust vestings which exist provide for one person as trustee to hold title for the true owner(s) who are named as beneficiary(ies) under a title holding agreement with the trustee. The trust agreement spells out ownership arrangements which are either the same as one of the four co-ownership interests provided by the vestings listed above or distinguishable from them, such as a subordinated ownership interest, priority distributions, allocation of tax benefits, etc., typical of co-ownership arrangements for an entity.

Finally, community property ownership has two available vestings:

  • husband and wife as community property; and

  • husband and wife as community property with the right of survivorship.

The community property vestings are only available to married couples.

Possessory rights of co-owners

Every co-owner of property has the right to:

  • possess the entire property himself, to the extent it is not already possessed or leased to others by another co-owner;

  • lease his possessory right to occupy and use the entire property to a tenant, except for community property since the lease is subject to being set aside by a nonconsenting spouse within one year after its commencement;

  • sell his ownership interest in the property without the need for prior notice to or the consent of the other co-owners, except for community property or a co-owner who has agreed to the contrary; and

  • encumber his ownership interest in the property without the consent of his co-owners, except for community property or when prohibited by a co-ownership agreement.

On the other hand, a co-owner has obligations to other co-owners not to:

  • exclude other co-owners from their right to possession of any part of the property [Oberwise v. Poulos (1932) 124 CA 247]; or

  • create an easement on the property against a co-owner.

Tenancy in common

Should the type of vesting not be stated when two or more persons take title to real estate, the co-owners are presumed to be tenants in common, a sort of default vesting attributed to their ownership. However, if the co-owners are husband and wife and title is not vested as a tenancy in common, the property is presumed to be community property. Also, if the conduct of the co-owners is in fact that of partners, the property ownership is subject to the rights of a tenancy in partnership. [CC §686]

Thus, a tenancy-in-common vesting is the form of ownership used by two or more persons, with an equal or disproportionate share of ownership in the property as the separate property of each, when they do not intend their relationship to be that of joint tenants on death or of partners for profit and the property is not acquired as a community property asset. [CC §685]

If the fractional co-ownership interest held by each co-owner was transferred to them at the same time, by the same deed and in equal shares, e.g., 1/3, 1/3 and 1/3, on the recording of one deed, then the only distinction between vesting the co-ownership as a tenancy in common or a joint tenancy is the right of survivorship attached to the joint tenancy vesting.

Thus, the person vested as a tenant in common retains control over the destiny of his ownership interest on death. The control is exercisable by will or by vesting the co-owner’s interest in the name of his inter vivos trust. The survivors in an ownership arrangement vested as tenants in common will not take the deceased’s interest as would have occurred under a joint tenancy vesting.

As tenants in common, co-owners retain the ability on death to transfer their interests in real estate to individuals other than the remaining co-owners of the property. Children jointly taking property on the death of a parent or relative will typically be designated as tenants in common or automatically be classified as tenants in common for failure of the will or trust agreement to state the nature of their co-ownership.

Tenancy in partnership

Groups of investors numbering just a few individuals often acquire property as co-owners, to hold and operate as income-producing property. They often take title to the real estate as tenants in common. However, the venture necessitates a joint effort for the collective benefit of all the individual co-owners. Thus, a tenancy in partnership exists for ownership purposes and a California partnership has been formed for operating purposes. [CC §682(2); Calif. Corporations Code §§16202(a), 16204(c)]

The group, as co-owners of property which requires day-to-day management, jointly operate a business venture. The management is conducted either directly by one or more of the co-owners in a coordinated effort or indirectly through a property manager. However, to be common-law tenants in common, the co-owners must intend not to act as a group.

Property vested in the names of profit-sharing, co-venturing co-owners as tenants in common is property owned by their “partnership,” not property fractionally owned and separately managed and operated by each co-owner individually. [Corp C §16203]

Thus, even though title is vested in all the individual co-owners as tenants in common, each co-owner actually holds title as a trustee on behalf of their informal partnership since the property’s operation requires a coordinated or centralized-management effort. [Corp C §16404(b)(1)]

Nature of a joint tenancy

Although most joint tenancies are created between a husband and wife, a joint tenancy can be created between persons other than a married couple, such as between other family members. In contrast, the community property vestings, of which there are two, are only available to a married couple.

Also, the number of joint tenants holding title is not limited to two, as is the case for a married couple’s ownership of community property. Any number of co-owners can, under one deed, take title to real estate as joint tenants so long as they share equally in ownership.

The joint tenancy vesting has been and is an estate planning tool used for the orderly transfer of ownership between family members on death. The vesting is rarely used in a business environment, except for community-owned enterprises or investments.

Traditionally, the creation of a joint tenancy requires the conveyance of four unities:

  • unity of title, meaning the joint tenants take title to the real estate through the same instrument, such as a grant deed;

  • unity of time, meaning the joint tenants receive their interest in title at the same time;

  • unity of interest, meaning the joint tenants own equal shares in the ownership of the property; and

  • unity of possession, meaning each joint tenant has the right to possess the entire property.

Today, a joint tenancy is loosely based on these four unities. For example, a joint tenancy is defined as ownership by two or more persons in equal shares. Thus, the joint tenancy co-ownership incorporates the unity of interest into the statutory definition. [CC §683]

Similarly, a joint tenancy must be created by a single transfer to all those who are to become joint tenants. Thus, the historic unity of title (same deed) and unity of time (simultaneous transfers) required under common law have been retained in one event, typically being the recording of the conveyance transferring title to the joint tenants.

A joint tenancy ownership in real estate may be created by any of the following transfers, each being a single conveyance to all joint tenants, if the conveyance states the co-owners take title “as joint tenants”:

  • a transfer by grant deed, quitclaim deed or assignment, from an owner of the fee, leasehold or life estate, to himself and others;

  • a transfer from co-owners vested as tenants in common to themselves; or

  • a transfer from a husband and wife holding title as community property, tenants in common or separately, to themselves. [CC §683]

For the small percentage of joint tenants who are not husband and wife, typically family members or life-long friends, a valid joint tenancy is created when all co-owners take title under the same deed as joint tenants, without stating their fractional interest in ownership. Their actual fractional ownership, if severed or transferred to others, is a function of the number of individuals who took title as joint tenants.

Joint tenant’s right of survivorship

The sole advantage of a joint tenancy vesting for co-owners is the extinguishment of a co-owner’s entire co-ownership interest in the property on his death. On death, the interest of the deceased co-owner is absorbed by the surviving joint tenant(s). Thus, the ownership interest previously held by the deceased co-owner avoids probate procedures since no interest remains to be transferred.

The same results occurs on death if a married couple uses the community property with right of survivorship vesting to hold title to real estate or personal property.

Other than the right of survivorship, a joint tenancy vesting neither adds nor diminishes the legal or tax aspects of the ownership interest held in the real estate by each co-owner.

For example, whether the interests held by the co-owners are separate property or community property, a joint tenancy vesting neither enlarges nor reduces the nature of the ownership interest, until death.

Thus, the right of survivorship is the distinguishing feature of a joint tenancy vesting and is legally referred to a jus accrescendi. The right of survivorship is a doctrine developed by case law and now codified in California.

The right of survivorship only becomes operative at the time of the death of a joint tenant. On death, the right of survivorship extinguishes the deceased’s interest and leaves the remaining joint tenant(s) with the entire ownership of the property to share equally among the surviving joint tenants.

Ultimately, on the death of all other joint tenants, the last surviving joint tenant becomes the sole owner of the property originally owned by all the joint tenants.

Ownership overlay

Joint tenancy rights and community property rights held by married couples overlap in California law when community property is placed in a joint tenancy vesting. This overlap is a by-product of California legal history.

Joint tenancy, with its inherent right of survivorship, arises out of the English common law, and is called a common law estate.

Community property, with its implicit partnership aspect, is a creation of Spanish civil law, dating from the time California was a Spanish colony.

Older cases treated community property and joint tenancy as mutually exclusive, i.e., holding real estate as community property meant it could not be held in a joint tenancy vesting and retain its community property status. Thus, a transmutation from community property to the separate property of each the husband and wife occurred by a transfer into a joint tenancy, comparable to vesting community property in a tenancy in common vesting today. [Tomaier v. Tomaier (1944) 23 C2d 754]

However, this “mutually exclusive” rule, which controlled legal results by the type of vesting and not by the community nature of the ownership by husband and wife, was eliminated in 1975.

Today, a joint tenancy vesting is merely a vesting used by co-owners solely to avoid probate. The joint tenancy vesting provides no other advantage to the co-owners. The underlying community or separate property character of the real estate is not affected when a husband and wife vest their co-ownership as joint tenants.

For instance, a husband and wife who take title as joint tenants do not by the vesting transmute their community property into separate property owned 50:50 by the husband and wife.

However, a joint tenancy vesting allows a husband and wife to renounce the community property presumption should they claim they intended the joint tenancy vesting to establish separate property interests in the real estate. Thus, the community property presumption can be rebutted by either spouse, and is occasionally exercised by the husband and wife to deter creditors. [Abbett Electric Corporation v. Storek (1994) 22 CA4th 1460]

A similar result altering community property rights occurs in federal bankruptcy proceedings when a husband and wife hold title as joint tenants. The interest of each spouse vested as a joint tenant is treated in bankruptcy as separate property in order to attain the objective of federal bankruptcy law to free individuals of onerous debt. Thus, a spouse’s one-half interest in community property vested as joint tenants is not liable under bankruptcy for debts which were incurred solely by the other spouse and not on behalf of the community. [In re Pavich (1996) 191 BR 838]

If the couple does not intend by the joint tenancy vesting to transmute their community property into separate property, but take title to their community assets as joint tenants for the sole purpose of avoiding probate – as is the case in nearly all joint tenancy vestings – the property is presumed to be a community asset without concern for the joint tenancy vesting.

Conveying community property

Both spouses must consent to the sale, lease for more than one year, or encumbrance of the community real estate no matter how it is vested. [Fam C §1102]

If one spouse, without the consent of the other, sells, leases for more than one year or encumbers community real estate, the nonconsenting spouse may either ratify the transaction or have it set aside. The nonconsenting spouse has one year from the recording of the nonconsented-to transaction to file an action to set the transaction aside.

However, if the other party to the transaction – the buyer, tenant or lender – has no notice of the marriage, actual or constructive, the transaction cannot be set aside by the nonconsenting spouse who has failed to make the community interest known. [Fam C §1102]

Conveying community property as joint tenants

The ability of a married joint tenant to sell, lease or encumber his interest in the real estate depends on whether the real estate interest vested in the individual is his separate property or the community property of the individual’s marriage.

When community real estate is vested in joint tenancy, both spouses’ signatures are required to execute an enforceable purchase agreement or trust deed lien, or to enter into a lease agreement with a term exceeding one year. [Fam C §1102]

Thus, a sale, long-term lease or encumbrance of the community property executed by only one spouse is voidable since the transaction may be set aside by the nonconsenting spouse if acted upon within one year after commencement.

Further, a purchase agreement for the sale of community property entered into by only one spouse may not be enforced in any part by the buyer through an action for specific performance.

Thus, a purchase agreement entered into by one spouse to sell only his one-half interest in the community property is unenforceable unless consented to by the other spouse since no interest in community property may be conveyed, leased or encumbered without the consent of both spouses. [Andrade Development Company v. Martin (1982) 138 CA3d 330]

However, if record title to the community real estate is in the name of one spouse only, a sale, lease or encumbrance executed by the title-holding spouse alone is presumed valid if the buyer, tenant or lienholder has no actual or constructive knowledge of the marriage. This includes any knowledge of the agent representing the buyer, landlord or lender, about the owner’s marital status. [Fam C §1102(c)]

Separate property joint tenancy vestings

When real estate held in a joint tenancy vesting is the separate property of each joint tenant, such as three siblings or a parent and child, each joint tenant can sell or encumber his interest in the real estate without the consent of the other joint tenants.

Also, when the real estate owned by a joint tenant is his separate property, the joint tenant may lease out the entire property since a lease is a transfer of possession, and each joint tenant has the right to possession of the entire property.

However, consider a husband and wife who own real estate which is community property. They hold title as joint tenants. The husband enters into an agreement to lease the property to a tenant for a term of over one year. The wife does not enter into the lease agreement with the tenant.

Under joint tenancy rules, any joint tenant alone may lease the entire property to a tenant. However, under community property rules (which apply to property acquired during the marriage with community assets), both spouses must execute a long-term lease agreement for the tenant to avoid challenges to set aside the lease for failure of both the husband and wife to sign the lease.

This one-spouse leasing scenario is an example of the misunderstanding created by the overlay and superiority of community property rights when community property is placed in a joint tenancy vesting.

Although no case or statute addresses this set of leasing facts, existing case law suggests the joint tenancy vesting should be viewed as controlling the landlord-tenant relationship, thus allowing the joint-tenant husband or wife to lease the property. Also, the doctrine of ratification would influence the result (in favor of the tenant) if the nonconsenting spouse knowingly enjoyed the benefits of the lease before attempting to set the lease aside. [CC §2310]

The agent’s role

A broker and his agents who represent a married person in the sale, lease or financing of community real estate must know whether the performance by the married person of a promise to pay a fee under a listing or to close escrow on a purchase agreement can be legally avoided by asserting community property defenses, thereby inflicting a loss on the broker.

For example, a broker obtains an exclusive right-to-sell listing signed only by the wife. The real estate listed is vested in the name of the husband and wife either as community property or as joint tenants.

During the listing period, the couple acting independent of the broker sell the property without the payment of a fee to the listing broker. The listing entitles the broker to a fee, payable by the person who signed the listing, if the property is sold by anyone during the listing period. [See first tuesday Form 102]

The broker claims both the husband and wife are liable for the brokerage fee since the actions of the wife committed the community to the payment of a fee and the property was sold during the listing period.

The wife claims the listing is entirely unenforceable without the husband’s signature since no part of the property listed can be sold and conveyed without her husband’s written consent.

Is the broker entitled to his fee?

Yes! The wife, separate from the husband, is liable for the fee since she signed the listing agreement employing the broker. The broker can enforce collection of his fee due under the listing in an action for money against the wife. However, the husband, who did not sign the listing agreement, is not personally liable for the brokerage fee. [Tamimi v. Bettencourt (1966) 243 CA2d 377]

Further, on recording the broker’s abstract of the judgment against the wife for the brokerage fee, the judgment becomes a lien on all community real estate owned by the couple. The husband’s separate property, however, is not liened and remains unaffected by the abstract which attaches as a lien to both the wife’s separate property and their community property.

In contrast to a listing employing a broker to locate a buyer, an action for specific performance by a buyer to enforce a real estate purchase agreement signed only by the wife will not be successful since an agreement to sell community real estate requires both spouses’ signatures. Management and control is in both, not just one co-owner, when the property is community real estate, no matter how vested.

Severing a right of survivorship

A husband and wife are the vested owners of a parcel of real estate which is community property. The vesting provides for the right of survivorship under either a community property with right of survivorship vesting or a joint tenancy vesting.

However, every co-owner vested as a joint tenant or community property with right of survivorship has the right to unilaterally sever the right of survivorship. The severance by a co-owner terminates the right of survivorship in that co-owner’s interest, whether his interest in the real estate is separate or community property. The separate or community property nature of the co-owner’s interest in the property remains the same after severing the right of survivorship from the co-owner’s interest.

A co-owner terminating the right of survivorship in his interest is not required to first give notice or seek consent from the other co-owner(s). [Riddle v. Harmon (1980) 102 CA3d 524]

To sever the vesting, the co-owner prepares and signs a deed from himself “as a joint tenant” or “as community property with right of survivorship,” back to himself. On recording the deed, the right of survivorship is severed by having merely revested the co-owner’s interest. The deed revesting title should include a statement noting that the transfer is intended to sever the prior vesting. [CC §683.2(a)]

Alternatively, the co-owner could transfer title to himself as trustee under the co-owner’s revocable inter vivos (living) trust agreement. The conveyance into the trust vesting would also sever the right of survivorship. By the conveyance, the trust vesting would also avoid the probate process while gaining control over succession of the co-owner’s interest on death. Again, community property remains community property even though vested in the living trust of the individual husband or wife.

Further, any transfer of a joint tenant’s interest in the joint tenancy property to a third party, such as from a joint tenant parent to a child, automatically severs the joint tenancy.

Termination of interest on death

Again, when the co-ownership of property is vested as joint tenants or community property with right of survivorship, the death of a co-owner automatically extinguishes the deceased co-owner’s interest in the real estate. Thus, the surviving co-owner(s) becomes the sole owner(s) of the property.

However, title to the deceased co-owner’s interest in the property must be cleared away before the surviving co-owner(s) will be able to properly sell, lease or encumber the property as the owner(s).

The enlarged ownership interest of a surviving joint tenant, clear of the deceased’s interest, is documented by simply recording an affidavit, signed by anyone, declaring the death of a joint tenant who was a co-owner and describing the real estate. [Calif. Probate Code §210(a); see first tuesday Form 460]

Likewise, the half interest in community property held by the deceased spouse at the time of death vested “as community property with right of survivorship” is extinguished by the same affidavit procedure used to eliminate the interest of a joint tenant, except that the surviving spouse (or the surviving spouse’s representative) is the only one authorized to make the declaration. [See first tuesday Form 461]

Judgment against a spouse

Now consider a husband who encumbers community property with a trust deed, executed by the husband alone and without the consent of the wife. The trust deed secures a note which evidences a debt or other monetary obligation undertaken by the husband.

Later, the trust deed lien is set aside in a judicial action by the wife since the wife did not consent to the encumbrance of the community property.

The husband defaults on the now unsecured loan. The lender obtains a money judgment against the husband individually and records an abstract of the judgment naming only the husband as the judgment debtor.

On recording the abstract, the judgment debt attaches as a lien to all community property in which the husband presently has an interest, as well as the husband’s separate property interests in other real estate. The wife’s separate property is unaffected by the recorded abstract.

Now, the same community property which had been previously encumbered by the judicially voided trust deed lien is now encumbered by the judgment which attached as a lien by recording the abstract.

Later, the couple’s marriage is dissolved and the wife is awarded sole ownership of the community property, now her separate property.

The wife claims the money judgment lien did not attach to the property since the debt which became the money judgment had been secured by the same property under a trust deed the court declared void.

Here, the recording of the abstract of judgment against the husband created a valid lien on all community property owned by the couple, including the property which later became property solely owned by the wife. The judgment attached to the property while it was still community property, before a property settlement conveyed the property or the marriage had been dissolved. [Lezine v. Security Pacific Financial Services, Inc. (1996) 14 C4th 56]

Joint tenancy tax aspects

Taxwise, the main question raised for a husband and wife when the surviving spouse becomes the sole owner of what was community property at the time of death, no matter how vested by them, is: What is the surviving spouse’s cost basis in the property as the sole owner on the death of the spouse?

The surviving spouse who becomes the sole owner of community real estate on the death of a spouse receives a “fully” stepped-up cost basis to the property’s fair market value on the date of the death which terminated the community.

Thus, the surviving spouse is entitled to a fully stepped-up basis in real estate previously owned by the community without concern for whether the community property was vested as community property, as joint tenants or in a revocable inter vivos trust. State law controls how marital property will be characterized for federal tax purposes. Federal law is unconcerned with “… the form in which title is taken” to community property. [IRS Revenue Ruling 87-98]

By California law, all property acquired by a husband and wife during marriage is community property, regardless of the vesting, if it is acquired, managed and operated as a community asset by the couple. [Fam C §760]

Thus, the real estate owned by a husband and wife (unless vested as tenants in common) is community property for federal income tax purposes. Accordingly, the surviving spouse on receiving the property receives a cost basis stepped-up to the property’s fair market value on the date of death, the result of becoming the sole owner of property previously owned by the community.