One of the most common questions probate attorneys hear is: What happens to property when someone dies? A common assumption is that property passes down in accordance with the terms of a decedent’s will; however, there are a few problems with this assumption.
For example, what if the decedent died intestate (i.e. without a will)? What if title to property is held by the decedent’s trust? Or what if title to property is held jointly by the decedent and a third party with “rights of survivorship,” and what if the effect of that deed is contrary to the terms of the decedent’s will or trust?
All of these issues have the ability to affect what happens to property when someone dies. Ultimately, however, the transfer of property after death will be dictated in large part by the title-vesting option the decedent had chosen for the property.
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How Title Affects Transfer of Property After Death
In order to determine what happens to property when someone dies, the first thing you will want to do is determine how the property had been owned. If you don’t have this information, you can visit the county clerk’s office in the county where the real property is located to view the most recent property deed.
There are five primary ways to hold title in California:
- Sole and separate ownership: A single owner has undivided interest in a property.
- Community property: A husband and wife or registered domestic partners jointly own property (i.e., each individual in the marriage/partnership has a 50% ownership interest in the property); according to community property laws, each spouse/partner is entitled to dispose of their 50% interest in the property to whomever they choose by will or trust.
- Community property with right of survivorship: A husband and wife or registered domestic partners jointly own property until one spouse/partner dies, at which point the surviving spouse/partner automatically absorbs the deceased spouse’s/partner’s ownership interest in the property.
- Joint Tenancy: Two or more persons have equal ownership of a property with a right of survivorship (i.e., the surviving owner(s) automatically absorb(s) the deceased owner’s interest in the property upon their death); owners do not have to be married or in a registered domestic partnership to be joint tenants.
- Tenancy in Common: Multiple persons share ownership of a property, and each person owns an undivided percentage of the property that they can use or dispose of as they please, with limited exceptions. Unlike other title-vesting options, tenants in common can have unequal ownership interests.
Title Types Requiring Probate
Property that is held by a sole owner, as community property or individually by tenants in common generally cannot be transferred to new owners without the property passing through the probate process, which is a court proceeding used to authenticate a decedent’s will, distribute their assets, and pay their creditors, among other things.
Probate can be a time-consuming and expensive process, which is why many people choose to avoid probate through various means, which can include selecting a title option that will allow property to transfer directly to the other owner(s).
The title types that generally require probate in California are:
- Sole and separate ownership
- Community property
- Tenancy in common (i.e., an individual owner’s interest in the property will have to pass through probate upon that owner’s death)
During probate, if a decedent’s will is deemed to be valid by the court, the executor of the estate will be able to distribute the decedent’s assets in accordance with the terms of their will after satisfying all valid creditor claims. If the decedent did not have a will, an administrator will be appointed to distribute the decedent’s assets to their heirs in accordance with the laws of intestate succession.
Title Types Not Requiring Probate
The title types that generally avoid probate in California are:
- Community property with right of survivorship
- Joint tenancy (when there are surviving joint owners)
- Property held in trust
When title to property is held in the foregoing forms, title transfers directly to the surviving owner(s) once one title holder dies.
While it is more common for married couples to take title as husband and wife as community property with right of survivorship, there are some that opt to take title as husband and wife as joint tenants. There are disadvantages to joint tenancy, both in terms of taxes and estate planning; however, for unmarried couples who desire a right of survivorship, joint tenancy can be a good option.
Perhaps the most common means of avoiding a formal probate of property is placing the property into a revocable or irrevocable trust. When property is held in a trust, distribution of the property upon the death of the trust creator (known as the settlor, grantor or trustor) is governed by the terms of the trust instrument through a process called trust administration, and a formal probate is not required.
Avoiding Probate With Transfer-on-Death Deeds
California offers a type of deed known as a revocable transfer-on-death deed, which allows a title holder to designate beneficiaries to whom the property should automatically transfer upon their death.
If a valid transfer-on-death deed exists, it is unlikely the property in question would have to be probated. This type of deed transfer after the death of a spouse can be particularly advantageous for beneficiaries, in that they can immediately gain ownership of the property instead of waiting for the probate process to complete.
Avoiding Probate Through “Shortcut” Probate Petitions
There are other types of petitions that can help an estate bypass a formal probate proceeding; they include:
- Spousal Property Petitions
- Petitions to Determine Succession to Real Property
- Small Estate Affidavits
A Spousal Property Petition is only able to be utilized by surviving spouses and registered domestic partners. It allows the court to confirm and convey ownership of property that is designated to pass from a deceased spouse/partner to their surviving spouse/partner without the property having to pass through a formal probate.
A Petition to Determine Succession to Real Property can be used by anyone to transfer a decedent’s share of a real estate asset to heirs and beneficiaries without the property having to pass through a formal probate. It is, however, important to note that this shortcut petition is reserved for estates where the gross value of the decedent’s assets subject to probate are valued at $184,500 or less.
A Small Estate Affidavit can be utilized by anyone to transfer a decedent’s entire estate (not just real property) to heirs and estate beneficiaries without the estate having to pass through a formal probate. As its name suggests, this petition can only be used for small estates, which, in California, are estates valued at $184,500 or less.
Shortcut petitions generally only require a single proceeding, which is beneficial to everyone involved because they offer an expedited way to transfer property after the death of a decedent. The bypassing of formal probate also ends up saving the decedent’s estate substantial money.
Potential Probate Disputes That Can Arise in These Scenarios
While the aforementioned title types come with many benefits, they do have the potential to cause property disputes. For example, suppose a person owned property in joint tenancy with their ex-spouse and died before converting the deed from joint tenancy to community property. While there is a presumption that the ex-spouse should not receive the property, the ex-spouse could argue in court that they have a right to receive the property, notwithstanding the divorce, causing a potentially expensive legal dispute to ensue with the decedent’s beneficiaries.
Another common dispute that can occur relates to joint tenancy. Suppose a married couple (with each spouse having entered marriage with their own set of children) owns property as husband and wife as joint tenants. While this is beneficial, in that the surviving spouse will automatically absorb the deceased spouse’s interest in the property upon the spouse’s death, it can cause problems down the road. For example, if the wife as the surviving spouse does not change the title type before she dies, the property could pass to her children only and not her husband’s children, even though the property had previously been equally owned by both spouses.
To prevent these types of property disputes from arising, it is a good idea to speak with a lawyer before titling property to learn about each title type’s present and future implications.
What Happens When the Title Presumption Conflicts With the Community Property Presumption?
What happens to property when someone dies if the title to property contradicts community property laws? What happens to property when someone dies without taking the proper legal steps to convert their community property into separate property?
In California, the form of title presumption reigns supreme upon the death of an owner, as discussed in detail in our article: Estate of Wall: Does the Community Property or Title Presumption Control Real Property in Probate? This means that if title to property conflicts with community property laws or a decedent’s will or trust, the law will presume that the property is owned by the record title holder upon the death of that record title holder. In order to rebut this presumption, the person challenging the decedent’s ownership of the property must introduce substantial evidence that the property should be owned by someone other than the record title holder.
We illustrate some of the complications that can arise in probate from California’s form of title presumption by summarizing two landmark cases in the following subsections.
Estate of Wall: Title Presumption Reigns Supreme in Probate
Let’s consider the recent California Court of Appeals case Estate of Wall. In this matter, a real property had been titled as a husband’s sole and separate property, and most of the facts surrounding the property supported this presumption, including that the down payment on the property and all mortgage payments had been made entirely from the husband’s separate assets.
Upon his death, however, his surviving spouse filed a petition with the probate court seeking to confirm that the asset is community property, because, among other things, the property had been purchased during her marriage to the decedent, which creates a presumption that the property is community property.
The decedent’s children objected to the surviving spouse’s claim, asserting that the property was the decedent’s separate property since the form of title presumption controlled whether or not the property was purchased during the marriage.
On this issue, the court found that the form of title presumption controlled over the community property presumption in the context of a post-death probate proceeding.
In re Brace: When Husband and Wife as Joint Tenants Fail to Properly Transmute Community Property to Separate Property
While in the aforementioned matter, the title presumption prevailed upon death of an owner, the community property presumption may prevail in other contexts. Take the ruling in California Supreme Court case In re Brace — a case that examined the possible conflict between the title and community property presumptions through the lens of a bankruptcy proceeding.
A married couple had previously vested title to two real properties as husband and wife as joint tenants with a right of survivorship. For the duration of a marriage, property that is held in joint tenancy by a married couple is considered community property (i.e., it belongs equally to both spouses); however, when one joint tenant dies, the title presumption goes into effect, and the property becomes the surviving tenant’s separate property.
After acquiring the properties, the husband filed for bankruptcy. The couple in Brace argued that since the wife had not joined her husband’s bankruptcy petition, and since the community property presumption only applies to marital dissolution proceedings, her 50% interest in the real properties should not be a part of the bankruptcy estate.
The court, however, disagreed, finding that the community property presumption applied regardless of the form of title because the property had been purchased during marriage. The court found that converting community property to separate property and rebutting the community property presumption require both spouses to sign a community property transmutation agreement.
What Happens When the Title Presumption Conflicts With a Decedent’s Estate Plan?
Probate lawyers frequently receive matters in which title conflicts with a decedent’s estate plan, which also can lead to property disputes.
As an example, suppose a husband and wife were joint tenants of a bank account when one spouse dies. If the deceased spouse’s will directs for the bank account to go to his children from a prior marriage, that gift is presumptively invalid since, according to bank account rules on death, the surviving spouse would automatically be entitled to become the sole and separate owner of that bank account upon her spouse’s passing. The children, however, could bring a petition to confirm the decedent’s share of the account was an estate asset by presenting the decedent’s will as evidence of his true final intentions.
Another common scenario involving title that occurs in probate has to do with trusts. A trust is considered an entity separate from the settlor. As a result, for the trust to hold property, it must be funded. In other words, title to property must be transferred into the name of the trust. If title has not been transferred by the time the settlor dies, that property will be regarded as belonging to the decedent’s estate and distributed to estate beneficiaries. However, if a decedent’s intentions to hold the property as a trust asset are clear from the provisions of the trust instrument, there may be a workaround in the form of an 850 petition.
A type of 850 petition known as a Heggstad Petition is an expedited procedure for transferring property into a trust that had not been formally transferred by the settlor; there is, however, no guarantee a Heggstad petition will be granted by the court. Prior to the establishment of Heggstad petitions, the only way to seek the transfer of property into a trust after the settlor had died was to probate the property at issue through estate administration, which, to some extent, defeated the purpose of having a trust, since most people execute trusts to avoid probate.
FAQs About the Title Presumption in Probate
It is important to understand the various manners of holding title in California in order to ensure the way a property is being held does not conflict with your estate plan. For example, if you choose to hold title as husband and wife as community property with right of survivorship, it is important to keep in mind that your surviving spouse will gain full ownership of the property upon your death. In other words, you would not be able to dispose of any portion of the property through your estate plan.
We provide answers to the most frequently asked questions about what happens to property when someone dies below.
How do you transfer a deed on an inherited property?
You are probably wondering how to transfer a deed after death. It’s good you are asking because if you have inherited property, it is crucial you take the proper steps to transfer the deed into your name; otherwise, you will not be considered a legal owner of the property. Many people falsely believe that if they are named as a beneficiary of a property in a will or trust, they automatically become legal owners of that property. This is incorrect.
If the property is subject to estate administration, the probate court will issue an order at the conclusion of the proceeding stating the way all the decedent’s assets, including any real property, should be distributed to the decedent’s beneficiaries or heirs. In order to properly transfer title from the estate to a beneficiary or heir, the executor or administrator can either sign and record a deed transferring ownership of the property to the beneficiary or heir, or they can simply record a certified copy of the court’s order on title to the property.
If the property is not subject to estate administration but is instead held in joint tenancy or as community property with rights of survivorship, then all that’s needed to transfer title to the remaining joint tenants and/or surviving spouse is an Affidavit of Death of Joint Tenant or an Affidavit of Community Property with Right of Survivorship, which must be signed and recorded on title to the property.
Sometimes, if may be necessary to challenge a deed if the document does not accurately represent the decedent’s true final intentions. For example, a decedent may have been unfairly pressured at a time when they lacked capacity to convey one of their properties to someone other than whom they intended to inherit it. If you need to challenge a deed, a probate attorney can help with this process.
How do you remove a deceased person from a deed?
If the decedent’s interest in real property is subject to estate administration, then the only way for the decedent’s name to be removed from title is to either sell the property to a third party, or to distribute property from the estate to the decedent’s beneficiaries or heirs.
If the decedent’s interest in the property is not subject to estate administration — e.g., if the property is held in joint tenancy or as community property with rights of survivorship— then the joint owners or surviving spouse will need to record an Affidavit of Death of Joint Tenant or an Affidavit of Community Property with Right of Survivorship (as noted above), which will remove the decedent’s name from title.
What happens when there are two names on a deed and one person dies?
If there are two names on a deed and one person dies, what will happen next will depend on the type of ownership. For instance, if title is held as husband and wife as community property with right of survivorship or husband and wife as joint tenants, then ownership of the decedent’s share will transfer to the surviving joint tenants or spouse upon the decedent’s death.
Conversely, if the property is held as community property or tenancy in common, the decedent’s ownership interest would need to be formally probated, subject to limited exceptions.
Still have questions about what happens to property when someone dies? Keystone is here to help.
Navigating the various manners of holding title can be especially challenging in a probate context. Making a wrong decision about title can have far-reaching and expensive consequences, which is why we always recommend consulting with a lawyer if you are presiding over an estate or trust as the executor/administrator or trustee, respectively, or if you stand to inherit property. Call us today to schedule your free consultation.
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