Ways to Take Title to Real Property in Arizona
This website cannot advise the best way for you individually to take title. This is a decision you should discuss with your real estate attorney and tax advisor. The information below is reference material. There may be other factors in your particular situation that might not be apparent in the material below that an experienced, competent Tucson real estate attorney can help you with. If you need assistance, let us know.
Types of Deeds:
- Joint Tenancy with the Right of Survivorship
- Tenancy in Common
- Community Property
- Community Property with the Right of Survivorship
- Beneficiary Deed
Points to Keep in Mind:
Entities that Can Hold Title:
Types of Deeds Individuals can use to Hold Real Property in Arizona:
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. In the past it was required that all joint tenants share the “four unities” which are: time, title, interest and possession. As of July 20, 1996, the Arizona legislature effectively abolished the requirement of the "straw deed" and the necessity of joint tenants to all take their interest at the same time to create a joint tenancy. The advantage of joint tenancy is that upon death of one of the joint tenants, their interest is transferred outside probate to the surviving joint tenant(s). There may be disadvantages in terms that the basis of the property may not be stepped up at death. 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. In Arizona, married couples must reject community property and specifically take title as tenants in common. Each owner has a distinct and proportionate interest without the right of survivorship. The only unity involved is possession. 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.
Community Property: Only persons married to each other may own real property 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 that property acquired by gift, devise or descent. 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. The expression of intent is best expressed in the deed.
Community Property with the Right of Survivorship: Only persons 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. 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.
Beneficiary Deed: (A relatively new way of holding title in Arizona): The Beneficiary Deed, touted as the best innovation in conveying property in quite some time, is the latest kid on the block when it comes to how to deal with real estate in Arizona. It is more than just a way to hold title to real estate. It is promoted as an estate-planning tool for estates large and small. The owner of real estate may record a deed in the county in which the property is located in order to transfer title to another upon the owner's death. The theory behind Section 33-405 of the Arizona Revised Statutes is to create a transfer-at-death type of grant to a third party without the need for special administration at the time of death. It is very flexible about who can grant and who can receive. There can be more than one owner and more than one beneficiary and the grant to the beneficiary can be held in any form permitted by law (i.e., joint tenancy with the right of survivorship, tenants in common, etc.).
Here are Some Points to Keep in Mind
Terminating a Joint Tenancy. 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. However, in other situations, such as where an unmarried couple hold real property in Joint Tenancy and they separate, it may be necessary to terminate the joint tenancy after the separation unless they wish the property to go to the other if a death occurs. In that case, the safest way to break the Joint Tenancy is to deed the property to a third party (sometimes called a "straw" person) and then deed it right back to the owner. That breaks the joint tenancy and creates a tenancy in common. With a tenancy in common, the property, at death, goes to the deceased tenant's estate and not to the surviving co-tenant.
Sole And Separate. Real property 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.
A Little History. For the most part, real estate transactions in Arizona are closed through title companies. Title companies in the 50s, 60s, and sometimes even into the 70s used to not give advice as to what type of deed to use. Most of the time, they put the title into community property, which usually shows: "John Doe and Jane Doe, husband and wife" on the deed. If you (or a parent or grandparent or other person) has a deed that reads in that way, be aware that a probate -- of some type either formal, informal or a type of affidavit -- will be necessary to transfer title to this Arizona real property to a survivor. It does not transfer automatically.
Entities that can be formed to hold title to real property in Arizona
Living Trust: A Living Trust is an estate planning tool formed by an individual or a couple to hold their assets. The Living Trust survives the death or deaths of the creator(s) of the trust (called "grantor" or "grantors") who are usually also the "Trustee" or "Trustees" of the trust. When both die or become incompetent, then a Successor Trustee takes over and administers the trust. This includes distributing the real property at the death of the Grantor(s). The Internal Revenue Code calls this a "Grantor Trust" but such trusts are more commonly called "Living Trusts".
General Partnership: Title may be taken in the name of a general partnership duly formed under the laws of the state of Arizona or the state of the formation of the partnership. A partnership is defined as a voluntary association of two or more persons as co-owners in a business for profit.
Limited Partnership: A partnership formed by two or more persons under the laws of Arizona, or another state, and having one or more general partners and one or more limited partners. A certificate of limited partnership must be filed in the Office of the Secretary of State, a certified copy of which must be recorded. Corporation Title may be taken in the name of a corporation provided that the corporation is duly formed and in good standing in the state of its incorporation.
Limited Liability Company: A Limited Liability Company is a hybrid between a corporation (which offers limited liability to the owners) and a General or Limited Partnership which passes through profit and loss without tax at the entity level. The Members own and can also manage the Limited Liability Company. Limited Liability Companies can be quite flexible and have become the entity of choice for most transactions.
Corporation: Corporations are legal entities owned by shareholders and managed by officers such as a president, vice-president, secretary and treasurer. Corporations shield their owners, in most cases from personal liability. "C" or "regular" corporations are taxed at the corporate level and then distribute dividends to shareholders that are taxed a second time at the shareholder level. They can also be "Sub-S" corporations which distribute income or losses directly to the shareholders. However, Sub-S corporations have many tax requirements. While there are many good reasons for forming a corporation, such as pension plans, for the most part, corporate ownership of real estate does not make the most of the tax benefits of real estate and is usually not a suitable form of ownership for real property.
