Understanding right of survivorship: What you need to know

The right of survivorship allows a home to pass directly to the surviving co‑owner when one owner dies, often avoiding the legal process of probate. For example, if two spouses own a house with a right of survivorship and one spouse dies, the surviving spouse typically becomes the sole owner.

In this guide, you’ll learn how the right of survivorship works, how joint tenancy and community property with the right of survivorship compare, and what to consider for taxes and wills.

How the right of survivorship works

The right of survivorship in a title is a legal principle that allows ownership of an asset to transfer automatically from one owner who has died to the other owners on the title.

Right of survivorship usually supersedes any will. The transfer is automatic upon death, and the estate doesn’t need to go through the legal process of probate.

If a property owner has a will or trust set up before they die, those documents usually decide the transfer of ownership. A will usually goes through probate, while a trust may be able to bypass it. If there is no will or trust, the probate process decides how to distribute the estate's assets, according to state law.

For a right of survivorship to be valid, the owners need equal rights to and ownership of the property, which typically occurs via joint tenancy or community property.

Joint tenancy

Joint tenancy is equal ownership of an asset, usually with automatic right of survivorship. If one owner dies, the surviving owners typically inherit that person's share automatically.

There are some proscribed steps you need to take to put a joint tenancy in place:

• Every owner must acquire their interest in the property at the same time.
• The property deed must explicitly state that ownership is held as joint tenants with rights of survivorship.
• Each joint tenant must own an identical percentage of the property.
• All owners must have equal rights to use and occupy the entire property.

Joint tenancy is often confused with tenancy-in-common, which is typically used when an asset is owned by business partners or friends. Tenancy-in-common has no right of survivorship, which means each owner is free to pass their share to their heirs.

Community property

There are nine community property states, where most property acquired during marriage is owned equally by both spouses. In other words, assets, debts, and even income become the couple's shared property during marriage. There typically is an exception for inheritances and gifts to one party or the other.

Community property doesn’t automatically include a right of survivorship.

Community property applies in:

• Arizona
• California
• Idaho
• Louisiana
• Nevada
• New Mexico
• Texas
• Washington
• Wisconsin

Alaska residents can opt in to community property during their marriage if they wish.

What is community property with the right of survivorship?

Community property with the right of survivorship, sometimes referred to as CPWROS, allows spouses in some community property states to combine community property rights with an automatic transfer at death. It allows you to pass your property to your spouse in those states without going through probate.

How does right of survivorship work with a will?

Right of survivorship usually overrides a will. The property never becomes subject to probate because the title terms automatically transfer it to the surviving owner.

With a tenancy in common, each owner's share of the property follows the terms of their estate plan, and the property can be passed on to their heirs as directed by their will.

Joint tenancy vs. community property with the right of survivorship

Community property with the right of survivorship is primarily for married couples in specific states, while joint tenancy can be used by owners who aren't married.

CPWROS has an added tax benefit: an automatic step-up in basis.

Are there tax benefits for surviving spouses in community property states?

Yes. Community property with right of survivorship can offer a tax benefit for married couples called a step-up in basis.

In tax terms, “basis” means the starting point for a property's value. With a home, it's usually what you originally paid for it, plus any improvements or additions made since then.

The IRS uses the basis to calculate your profit when you sell the home, which may be subject to capital gains tax.  Some exclusions limit how much of your profit is subject to capital-gains tax. But a higher basis will reduce that taxable amount.

A “step-up” is a tax rule that resets the basis of an inherited home to its value at the owner's death, rather than the original purchase price. This can reduce or eliminate the need to pay capital gains tax on the sale of the home.

If you live in a community property state, IRS rules provide a double step-up in basis. This means that both of you see your basis increase to the fair market value of your home should your spouse pass. This further reduces your tax liability.

Step-up in basis examples

Let’s say you buy a home for $200,000 and 10 years later, when your spouse passes, it’s worth $800,000. When you decide to sell 5 years later, you do so for $1 million. What’s your potential tax liability? Here’s the formula:

Sale price - 0.5 × spouse’s adjusted basis on death - 0.5 × original basis on purchase

If we substitute in the numbers, that becomes the following:

$1 million - 0.5 × $800,000 - 0.5 × $200,000 = $500,000

For a double step-up in basis, let's keep all the facts from the example above the same, but assume you and your spouse live in a community property state. You took title as community property with right of survivorship, so the basis in the property for both spouses is the fair market value on the date of the first spouse's passing – $800,000. That makes the taxable value calculation look like this:

$1 million - $800,000 = $200,000

The double-step-up in basis significantly reduces capital gains tax liability.

The bottom line: Best practices for incorporating the right of survivorship

By electing to take title as “community property with right of survivorship” – or the equivalent language in your community property state, property passes to the surviving spouse without going through probate, saving time and money. In addition to the traditional benefit of avoiding probate that comes with joint tenancy, a step-up in basis available in community property states can lower capital gains tax liability.

If joint tenancy isn’t an option and you still want to avoid probate for your home, you may be able to take advantage of a transfer on death deed or similar estate planning maneuver. Estate planning can be extremely complicated. If you have questions about your own situation, consult an estate planning professional.

For more information on estate planning and your home, read our article on what happens if you have a mortgage when you pass away.