Joint tenancy (in some states "Tenancy by the Entirety" when between spouses) is one of the most common ways for a husband and wife to hold title. In California, a husband and wife should never hold title to appreciated property in joint tenancy with the right of survivorship. Joint tenancy property that is otherwise community property does not qualify for a full step-up in basis for income tax purposes upon the death of the first spouse. This problem was so significant that California created a new form of ownership to avoid this problem. A married couple that holds title as community property with the right of survivorship will qualify for a full step-up in income tax basis.
California has the highest capital gains rates in the nation, so this is a very expensive trap for the uniformed. This issue can be avoided by the use of a revocable trust to hold title.