Surprise and Peril Await When Adding a Co-Owner to California Real Estate

Unintended consequences of co-ownership

Sole proprietors of California real estate avoid probate by adding a co-owner in condominium. This post lists the surprises and perils of shared accommodation.

The unintended consequences of co-ownership are: unfavorable tax treatment; exposure to creditors of the new owner; control abandoned; and non-transfer due to unforeseen death order.

—Mark W. Bidwell

HUNTINGTON BEACH, California, USA, Jan. 27, 2022 /EINPresswire.com/ — This article by Mark W. Bidwell identifies the dangers and surprises of condo owners. Adding a co-owner opens up the possibility of many unintended consequences. The unintended consequences are: unfavorable tax treatment; exposure to creditors of the new owner; relinquished control to sell and mortgage the property; and non-transfer due to unforeseen death order.

Co-ownership is a form of co-ownership of real estate where more than one person owns the real estate and each owner has equal ownership. The co-ownership has the “right of survivorship”. Upon the death of a joint tenant, the deceased joint tenant’s share of the assets is transferred to the surviving joint tenant(s) upon death without the need to administer probate. Joint ownership trumps wills and trusts. This simple change of ownership is quite simple to understand and inexpensive.

But surprises await you. The first is the unfavorable tax treatment on the sale of real estate in California. The participation of the new roommate is brought to the fair market value for the base of the property tax. There are two exceptions to this rule; add a spouse or add a child who lives with the parent.

The next surprise is an increase in capital gains tax. Lifetime gifts of real estate transfer the purchase price or “base” from the original owner to the new co-owner. Transfers of real estate at death receive a basis adjusted to the fair market value at the date of death. For lifetime transfers of real estate with a low purchase price compared to a higher current market value, this results in an additional capital gains tax on the subsequent sale of the real estate.

The third surprise is the new co-owner. The creditors of the new co-owner can use the building as a source of repayment. In addition, the new co-owner must sign any sale or financing. The sole proprietor cedes control to the new co-owner.

The final surprise is an unexpected death order. If the new owner dies before the current, then the purpose of adding a new owner is defeated. Also, at some point, the surviving roommate will die and the real estate will have to be transferred through probate court.

Adding a co-owner opens up the possibility of many unintended consequences. These are: unfavorable tax treatment; exposure to creditors of the new owner; relinquished control to sell and mortgage the property; and non-transfer due to unforeseen death order.

This article was written by Mark W. Bidwell, an attorney located in Orange County, California. The office is located at 4952 Warner Avenue, Suite 235, Huntington Beach, CA 92649. The phone is 714-846-2888. The email is [email protected]

Mark W. Bidwell
Mark W. Bidwell, a law firm
+1 714-846-2888
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