Owning Real Estate in Arizona
If you have ever purchased real estate you undoubtedly have been asked the question – “How would you like to hold title?” Most people’s response is “I am not sure, what do you recommend. To which the title company says we can not give you legal advice. So to help you answer this question we will provide you with information on what options you have to take title.
In Arizona only persons legally married to each other may own real property as community property. When property is owned as community property, each spouse owns an undivided one-half interest in their community property. Each spouse may provide by will for the disposition of his or her community interest in the community real property. However, Arizona community property law requires both spouses to join in a conveyance or encumbrance of community real property. Property acquired by a spouse during marriage is presumed to be community property except property which is acquired by gift or inheritance. A married couple seeking to hold title to real property located in Arizona in a form other than community property may do so by renouncing the community property form and specifically accepting another form of co-tenancy.
Community Property With The Right Of Survivorship
Again, only persons legally married to each other may take title as community property with the right of survivorship. One spouse is entitled to the whole of the property upon the death of the other and both halves of the community property receive a new tax basis equal to the fair market value as of the date of death. This tax treatment provides one of the key benefits to holding title in this fashion. Evidence of the intent of a married couple to hold title to real property as community property with the right of survivorship must be in writing in order to avoid the presumption of community property. When parties that hold property as community property with the right of survivorship dissolve or annul their marriage, the property converts to tenancy in common.
Sole And Separate
A married person may hold title as their sole and separate property it the real property was owned by a spouse before marriage or any acquired after marriage by gift, descent or specific intent. If a married person acquires title as sole and separate property, his/her spouse must execute a disclaimer deed to rebut the presumption of community property.
Joint Tenancy With The Right of Survivorship
Two or more persons may hold title to real property as joint tenants with the right of survivorship. One reason people hold property as joint tenants is that upon death of one of the joint tenants, their interest is transferred outside probate to the surviving joint tenant(s). This can make the transfer easy and provide a real benefit to the owners. However, if you want to be able to direct where the property goes by your will or trust, you do not want to hold property as joint tenants. Evidence of the intent of a married couple to hold title to real property as joint tenants with right of survivorship must be in writing so as to avoid the presumption of community property.
Tenancy In Common
Two or more persons may hold title to real property as tenants in common. Each tenant in common owner has a distinct and proportionate interest without the right of survivorship. Their undivided interest need not be equal but in the aggregate cannot exceed 100% of the ownership interest. A tenant in common may transfer his undivided interest without destroying the co-tenancy estate. In Arizona, married couples must reject community property and specifically take title as tenants in common.
What about Investment Property?
If you own investment property it is often wise to consult specifically with an accountant and an attorney before taking title to the real estate. This is because there may be significant tax savings that are available to you which your accountant can make you aware of. Additionally, your attorney can give you advice on ways to limit your liability with investment property, such as owning the property in a limited liability company (LLC) or a corporation.
While this article provides some general information on different ways to hold title, it is not meant to be exhaustive. If you have questions on how to hold title top provide for your specific needs you should consult with a knowledgeable attorney.