Your Mortgage : How You Hold Title to Home Can Prove Costly : Ownership: What will be done with your home after you die and what taxes your survivor will have to pay will be determined in part by the way title is held.

One of the most important issues that you must address, whether you’re a longtime homeowner or are planning to buy a house soon, is how you hold title to your property.

It’s an issue that most people barely even think about. But how you hold title to your home has far-reaching income-tax and legal ramifications that you can’t afford to overlook.

“How you hold title can affect what will be done with the property after you die, how much taxes will be owed when your survivor eventually sells and a bunch of other issues,” said Steven A. Sokol, one of the California Assn. of Realtors’ lawyers.

“Yet, people don’t really consider how they hold title. It’s really an important estate-planning issue, but most people don’t give it much thought.”

Most property owners hold title in one of three ways: sole ownership, tenants-in-common or joint tenants.

Sole ownership is the easiest to understand: It’s the most common way for people to hold title when no other owner is involved. When the sole owner dies, his interest in the property will be passed on to whomever he names in his will.

Two or more single people who team up to buy a house usually take title as tenants-in-common.

Each tenant-in-common has what lawyers call an “undivided interest” in the home--meaning that they each own part of the property, but that their interest can’t be broken down into a “you-own-this-bedroom-and-I-own-that-one” situation without a separate written agreement.

Tenants-in-common don’t have to own equal interests in the home. One could own, say, three-quarters of the property and the other could own the rest.

“One of the most important things about a tenancy-in-common is that any of the co-owners can sell their interest in the property to somebody else without the consent of the other owners,” said Patricia Phillips, a partner in the Los Angeles-based law firm of Hufstedler, Miller, Kaus & Beardsley.

“Also, when one of the tenants-in-common dies, his interest in the property is passed on according to his will--it doesn’t automatically pass to all the other co-owners.”

That’s not the case when people take title as joint tenants--the most common form of ownership among married people.

Under a joint tenancy arrangement, each party must have an equal interest in the property. A husband and wife who take title to their home as joint tenants each owns 50% of the house.

“The most important aspect of a joint tenancy is that there’s an automatic right of survivorship,” said CAR attorney Sokol.

“If the husband dies and he and his wife held title as joint tenants, his interest in the home automatically passes to his wife.”

In other words, if you and your partner take title to a home as joint tenants, you won’t be able to will your interest to anyone else.

Even if your will states that you want your half of the home to go to a long-lost nephew, the right of survivorship will usually supersede your bequest and automatically award your interest in the property to your surviving joint tenant.

You don’t have to be married to hold property through joint tenancy, and more than two people could be on the title.

For example, you could set up a joint-tenancy arrangement if you’re investing with your two closest friends and would like to have your interest in the property automatically passed to them when you die.

However, each of you would have to own an equal interest in the property. Since there are three people involved, each would have an undivided one-third interest in the home.

If you don’t know how you hold title to your home, or if your marital situation has changed since you bought the property, fish out a copy of the grant deed or title insurance policy you received when you bought your house.

If you can’t find these documents, the company that provided your title-insurance policy or escrow services can give you duplicates.

After looking at how you hold title, you might decide that some changes are in order.

For example, if you bought a home with someone else while you were single, you probably hold title as tenants-in-common. But if you’ve since married that person, you might want to change it so you’ll hold it as joint tenants.

On the other hand, if you plan to get married soon but would like to see someone other than your spouse inherit your interest in the property after you die, you might reject joint tenancy in favor of a tenants-in-common relationship.

For example, say you’re engaged and that both you and your fiancee have children from a previous marriage. Since both of you are financially secure, you would like to leave your interest in the home to your children instead of your spouse.

If you took title as joint tenants and then died, your interest in the property would automatically pass to your spouse even if your will stated that you wanted your offspring to have it. But if you took title as tenants-in-common, you could freely will your interest to your kids.

In fact, if you’re married or plan to wed soon, it might even be better to hold title as community property instead of joint tenancy.

This type of arrangement is only allowed in California and the six other community-property states--Texas, Arizona, Nevada, New Mexico, Idaho and Washington. It’s also permitted in Puerto Rico.

Only married people can hold title as community property. It’s much like a joint-tenancy arrangement, with an important exception: If you die and your spouse later sells the home, the fact that the house is community property will provide your survivor with important tax breaks.

There’s no automatic right of survivorship in a community property arrangement: Both the husband and wife can will their interest in the home to someone else.

“Each owner usually wills their interest in the home to each other or their kids. If they die without a will, the survivor normally receives the deceased’s interest in the home,” Sokol said.

Like a joint-tenancy set-up, Sokol said, a community-property arrangement also avoids costly and time-consuming probate proceedings.

“However, you run the risk that your spouse might have made out another will that gives the property to somebody else upon your spouse’s death. That means you wouldn’t inherit your late spouse’s interest in the home, even though you thought you would.”

It’s usually easy to change the way you hold title to your home or other real estate.

For example, say you and your partner hold title as tenants-in-common, but you want to become joint tenants. This can be accomplished with the help of a quitclaim deed, which you can purchase at most business supplies or stationery stores.

You would fill out the quitclaim to show that you and your partner, as tenants-in-common, are quitclaiming the property to yourselves, as joint tenants. Have it notarized, record it at the county recorder’s office, and you’re all set.

Since the way you hold title to property involves such important legal and tax issues, it’s a good idea to talk to a real estate attorney or estate planner to find out which method will best serve the long-term interests of both yourself and your family.

In fact, there’s a good chance that the expert you consult won’t suggest taking title as joint tenants or tenants-in-common at all: They might suggest that you hold title to the home as a “living trust.”

We’ll talk about these trusts--which attorney Sokol says “is the best way for just about anybody to hold title to real estate”--next week.