How You Hold Title to Real Property May Create a Real Life
Problem
By: Beth S.
Cohn
If you were a married couple living Arizona, you had three
options as how to hold the title to real property in Arizona.
The choices were:
- community property,
- joint tenants with right of survivorship ("JTWROS") and
- tenants in common.
Now, under A.R.S. § 33-431, there is a fourth option - community
property with right of survivorship ("CPWROS").
HISTORY
Prior to the existence of CPWROS, if married couples wanted to
avoid probate and did not have an estate large enough to use a
trust for estate planning purposes, their choice was JTWROS.
The language in the Deed to create a JTWROS needs to include
specific language in the granting portion requiring vesting to be
as JTWROS. Although not required under A.R.S. § 33-431
(B), an acceptance is usually attached to the Deed specifically
stating that the grantees are not accepting title to the property
as community property, as tenants in common or as CPWROS.
This acceptance is signed by the grantees and attached to the Deed
for recording.
WHAT CHANGES WITH THE ADDITION OF
CPWROS?
Now, if married couples want to avoid probate and their estate
is not large enough to use a trust as an estate planning tool,
their choice includes holding property as either JTWROS or
CPWROS. The language in the Deed still requires
specific language in the granting portion of the Deed
requiring vesting to be as CPWROS. Although not required
under A.R.S. § 33-431 (C), an acceptance is usually attached
to the Deed specifically stating that the grantees are not
accepting title to the property as community property, as tenants
in common or as JTWROS. This acceptance is signed by the
grantees and attached to the Deed for recording.
Although this seems straight forward and simplistic, many Deeds
are not prepared by attorneys. If the Deed does not have the
specific and appropriate language in the grant section to create
the JTWROS or CPWROS, the most likely legal result will be that the
couple owns the property as community property and does not have
any survivorship rights. There is a legal presumption in
Arizona that husbands and wives own property as community property
when acquiring it with community funds. If they attempt to
transfer title to be held as JTWROS or CPWROS and have a technical
error in the granting language of the Deed, even if the acceptance
has been signed and recorded, the survivorship right is not created
and under A. R. S. § 33-431. Instead, they have created
community property.
WHY IS THE TECHNICAL LANGUAGE
IMPORTANT?
You may be wondering why this is important. It is critical
when one of the spouses dies and the property has to be probated to
achieve the desired ownership. In many cases, the property
will pass to the surviving spouse under a Will or to a Trust for
the benefit of the surviving spouse. If there is no
Will and the property passes by intestate succession, it may not
pass to the surviving spouse. Under intestate succession laws
it will pass as follows:
- If there are children only from the current marriage, the
property will pass intestate to the surviving
spouse.
- If there are children of the deceased spouse from a prior
marriage and none from the current marriage, the property will pass
intestate ½ to the children from the prior marriage and ½ to the
surviving spouse.
- If there are children of the deceased spouse from both a prior
marriage and the current marriage, the property will pass ½ to all
of the children and ½ to the surviving spouse.
As you can see, this is particularly problematic when the
property is the personal residence of the surviving spouse and home
for the children from the current marriage.
When both spouses are living, an incorrect Deed can be
fixed. Unfortunately, many times these issues are not
discovered until one of the spouses has passed away or when the
surviving spouse wants to sell the property. If all children
of the deceased spouse are children of the surviving spouse, a
probate or similar procedure can result in the surviving spouse
owning the property. If this is not the case, the only other
alternative is to file a petition with the court to correct the
Deed. If an acceptance of JTWROS or CPWROS has been signed
and attached to the defective Deed, the argument to the court is
that the parties intended to create the JTWROS or CPWROS, except
for the technical error in the preparation of the Deed. If
there are children from a prior marriage and they don't object to
the process, the result should be favorable.
The Arizona Courts have recently reviewed this issue. In
two different cases, the courts have held that language in the
acceptance attached to a defective Deed will allow reformation of
the deed if the intent of the parties to the Deed can be clearly
shown. If the property is sold, will the responsible title
company honor the survivorship based on the Acceptance attached to
the Deed or will it require reformation based on these cases?
My experience is that it depends on the title
company.
To avoid unnecessary legal fees, having a property that is
difficult to sell because of potential title problems or not having
the property pass cleanly to the surviving spouse, have the Deed
prepared by an attorney. This ensures that the technical
language is correct if you are holding the property as either
JTWROS or CPWROS.
About the author: Beth S. Cohn is a shareholder at the Phoenix
law firm of Jaburg Wilk. She chairs the business law
department and is a State Bar of Arizona certified tax specialist
and a CPA. Beth can be reached at bsc@jaburgwilk.com or
602.248.1030
This article is not intended to provide legal advice and
only relates to Arizona law. It does not consider the scope
of laws in states other than Arizona. Always consult an
attorney for legal advice for your particular situation.
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. Phoenix . Arizona