What's a co-tenant?
A roommate allows multiple people to share an equal ownership interest in the property. You usually see this reflected between husband and wife as roommates. People do it mainly because when one person dies, the other automatically inherits the property without it being necessary to go through a probate process under the so-called "right to survival".
The surviving spouse simply needs to file an affidavit of the roommate's death, and then the property is entirely in the name of the surviving spouse.
Guess what? As the property is now again in the name of an individual, it must go through a check.
Let's look at another example. You want your rental property to be left to your four children. To do this, you can leave them as joint tenants. Most people think that there can only be two roommates, but that's completely wrong.
You can have 10 roommates, even 100, but in this example, we will assume 4. The only requirement is that they have an equal share. Tony, Terry, Tommy and Tessy each have 25%. What happens if Terry has a car accident and is sued? His interest of 25% is definitely an asset judgment credit, which has caused the whole family to embark on a useless drama.
Let's say Tony dies, and now there are three tenants with 33.33% each, but the joint tenancy is gone. They are now tenants in common.
So if something happens to them, the property will end up in Homologation, as will the surviving spouse of a roommate.
Why are we trying to avoid homologation? Because probate is expensive. These are just ordinary expenses. A lawyer may also ask the Court for extraordinary fees for certain tasks.
Here are the rates in effect and these are mandatory fees for ordinary compensation (the Court may also grant extraordinary expenses for certain activities):
- 4% of the first $ 100,000 of the gross value of the inheritance
- 3% of the next $ 100,000
- 2% of the next $ 800,000
- 1% of the next 9 million
- .5% of the next $ 15 million
And these fees are completely preventable. All you have to do is establish a California Living Trust. When you create a living trust in California, you indicate the conditions of that distribution directly in trust. You name these 4 people as beneficiaries of the rental house in the trust. Say it's the Smiths. Once created, the living trust must be funded.
Financing is a sophisticated term that lawyers like to use, but it simply means that the title of the rental house (or any property of the trust) is conceded from the husband and wife to the trust.
So the title goes from: Joe and Jan Smith, a married couple
To: Joe and Jan Smith, directors of Joe and Jan Smith Family Living Trust.
Now, when something happens to Joe and Jan, the person they named as the replacement trustee of their CA Living Trust takes over. The first thing the successor does is to go to the county to get a copy of the death certificate, and then file it with an affidavit of death from the trustee to the county recorders. Office. That's it! No homologation. No exposure to lawsuits.
Before considering using renting together as an estate planning tool, think again and create a living trust.