Deed and Record Tip Sheet on How to Avoid Probate of California Real Property and Save on Taxes

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Deed and Record is an internet service to change California real property ownership into a living trust. Tip Sheet by Deed and Record explains how a living trust avoids probate of real property in California and how to reduce taxes.

Mark W. Bidwell, Attorney at Law

California real property not owned by a living trust is at risk of probate.

Deed and Record is an online service to change ownership of real property. This press release has tips on how ownership change into a trust avoids probate in California and reduces taxes.

1. Avoid Probate: The best way to avoid probate in California is with a trust. Many Californians have a living trust and own real property but have not connected the two together by “funding” the real property into the living trust. Funding real property into a living trust is by “deed.” On death of the owner, the successor trustee transfers real property by deed to heirs, relatives or others as directed in the trust.

Deeds are paper documents signed by real property owners to convey ownership or to change how real property is owned. Deeds are either “warranty deeds” “grant deeds” or “quit claim deeds.” It does not matter what deed to use to fund a trust because the real property owner changes only how real property is owned. There is no change in actual ownership.

The deed must be part of the public database maintained by each county in California. The deed is “recorded” in the county where the real property is located. Each county’s department to process deeds is aptly named the “County Recorder.” Recording the deed puts the world on notice how title is held and is the final word on ownership.

There are no transfer taxes or property tax increases on trust transfers. But trust transfers of real property by a married couple in California have a unique capital gains tax challenge. A transfer out of joint tenancy into a trust may not be treated as community property by the IRS.

2. Reduce Capital Gains Tax: The surviving spouse can avoid or reduce capital gains tax in a community property state like California. Community property receives a full step-up in basis on the first spouse’s death and the opportunity to avoid or reduce capital gains tax. If community property treatment is desired, good practice is in writing to expressly state the real estate is community property. The best place to make the community property affirmation is directly on the deed terminating the joint tenancy.

“Community property” designation does have legal consequences in the event of divorce or dissolution of marriage. Any separate property interest in real property designated as community property may lose its separate property interest and the other spouse obtains a one-half ownership in the real property in the event of a divorce.

3. Avoid Property Tax Increase. Each county property tax assessor's office in California reviews all recorded deeds for that county to determine which properties require reappraisal under California law. Proposition 13 requires the county assessor to reassess the property to its current fair market value as of the date change in ownership.

Since property taxes are based on the assessed value of a property at the time of acquisition, a current market value higher than the previously assessed Proposition 13 adjusted base year value will increase the property taxes. But there are exclusions. Transfers in and out of a trust are exempt. To obtain the exclusion, the grantee fills out a form for the county assessor entitled Preliminary Change of Ownership Report (PCOR).

In California the best way to avoid probate is with a trust. Funding real property into a trust is by “deed.” A deed is a paper documents signed by real property owner to convey ownership and change title. Deed and Record prepares and records deeds for owners of real property who have created a trust.

This press release is provided by Mark W. Bidwell, a licensed California attorney. Office is 4952 Warner Avenue, Suite 235, Huntington Beach, California. Phone number is 714-846-2888.

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Mark Bidwell

Mark W.Bidwell
Kim Nishida
since: 10/2012
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