TIP 9 - HOW TITLE IS HELD DEFINES EXTENT OF OWNERSHIP AND RESTRICTIONS ON ITS DISPOSITION
After Mexico won its independence from Spain in 1821, Mexico closed all missions in Arizona. In 1848 Mexico ceded New Mexico and most of Arizona to the U.S. In 1853 the southernmost part of Arizona was purchased by the U.S. from Mexico and in 1863 New Mexico and Arizona were split. Forty-nine years later Arizona became the 48th State on Valentine's day, February 14, 1912, as the 6th largest state by land mass.
Property rights are very important in Arizona, especially when considering only 18.1% of the land is privately owned! Of the remainder, 42.1% is Federal-owned land, by treaty 27.1% is Tribal lands of 21 Indian Tribes and 12.7% is held in a State Land Trust to help fund public K-12 education, which explains our lower property tax rates.
Arizona is one of the states in the Southwest with property title laws influenced by prior Spanish law that sanctifies marriage between two persons who may hold title to real property as Community Property. A more recent law created Community Property with Rights of Survivorship.
Married couples holding title to real property as Community Property may separately devise by will one half of the estate to their specific heir or heirs. But with Community Property with Rights of Survivorship, the interest of each spouse is 100% undivided ownership of the real property and upon the death of a spouse, the property passes to the surviving spouse outside of probate. An interest in JTWROS property can be partitioned and the interest sold to another party. But upon the death of a joint tenant, all interest conveys to the surviving joint tenant titleholders.
Tenants In Common (TIC) hold title to real property in a proportion agreed to by all the other TIC owners of the property and this separately identified portion of the entire property may be bought, sold or encumbered separately or devised through probate. But all TIC owners must agree to conveyance or encumbrance of the whole property.
Lastly, 100% of the tax basis of Community Property may be stepped up upon the death of a spouse. But a property held as JTWROS, only the share held by the deceased tenant in joint tenancy could have their tax basis stepped up.
Before you close your purchase escrow, carefully consider the best method of holding title to real property. For estate planning purposes, inquire about a recorded Beneficiary Deed to bypass probate and directly convey title to the entity named on the Beneficiary Deed upon the death of the last surviving owner of record.
Ways to Hold Title to Real Property in Arizona:
|COMMUNITY PROPERTY||JOINT TENANCY WITH RIGHT OF SURVIVORSHIP||COMMUNITY PROPERTY WITH RIGHT OF SURVIVORSHIP||TENANCY IN COMMON|
|Requires a valid marriage between two persons.||Parties need not be married; may be more than two joint tenants.||Requires a valid marriage between two persons.||Parties need not be married; may be more than two tenants in common.|
|Each spouse holds an undivided one-half interest in the estate.||Each joint tenant holds an equal and undivided interest in the estate, unity of interest.||Each spouse holds an undivided one-half interest in the estate.||Each tenant in common holds an undivided fractional interest in the estate. Can be disproportionate, e.g.,20% and 80%; 60% and 40%; 20%, 20%, 20% and 40%; etc.|
|One spouse cannot partition the property by selling his or her interest.||One joint tenant can partition the property by selling his or her joint interest.||One spouse cannot partition the property by selling his or her interest.||Each tenant's share can be conveyed, mortgaged or devised to a third party.|
|Requires signatures of both spouses to convey or encumber.||Requires signatures of all joint tenants to convey or encumber the whole.||Requires signatures of both spouses to convey or encumber.||Requires signatures of all tenants to convey or encumber the whole.|
|Each spouse can devise (will) one-half of the community property.||Estate passes to surviving joint tenants outside of probate.||Estate passes to the surviving spouse outside of probate.||Upon death, the tenant's proportionate share passes to his or her heirs by will or intestacy.|
|Upon death, the estate of the decedent must be "cleared" through probate, affidavit or adjudication.||No court action required to "clear" title upon the death of joint tenant(s).||No court action required to "clear" title upon the first death.||Upon death, the estate of the decedent must be "cleared” through probate, affidavit or adjudication.|
|Both halves of the community property are entitled to a "stepped up" tax basis as of the date of death.||Deceased tenant's share is entitled to a "stepped up" tax basis as of the date of death.||Both halves of the community property are entitled to a "stepped up" tax.||Each share has its own tax basis.|
Notes Regarding Holding Real Property Title in Arizona:
- Arizona is a community property state. Property acquired by a husband and wife is presumed to be community property unless legally specified otherwise.
- The title may be held as "Sole and Separate." If a married person acquires title as sole and separate, his or her spouse must execute a disclaimer deed to avoid the presumption of community property.
- Parties may choose to hold title in the name of an entity, e.g., a corporation; a limited liability company; a partnership (general or limited), or a trust. Each method of taking title has certain significant legal and tax consequences; therefore, you are encouraged to obtain advice from an attorney or other qualified professional.
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