Real estate ownership can take several forms, with each differently impacting ownership transfer, financing, and taxation. Each type of title method has its advantages and disadvantages, depending on one’s particular situation and how one wants ownership to pass in the event of such things as death, divorce, or sale. Let’s discuss some more common ways of holding title:
Joint Tenancy occurs when two or more people hold title to real estate jointly with equal rights to enjoy the property during their lives. If one partner dies, their rights to ownership pass to the surviving “tenant(s)” through a relationship knows as “right of survivorship.” In this case, complete ownership can be passed to the surviving owner if one of them passes and avoid probate. The responsibility for the property is shared between the two (or more) tenants, which means that the financial responsibility is equally shared amongst all. On the other hand, this also means that if financing is to be secured or restructured in any way, all tenants must agree and participate in the process, once again sharing the responsibility.
Tenancy In Common (TIC) is when two or more persons hold title to real estate jointly, with equal or unequal percentages of ownership. Brenda, for example, could have a 40% interest in a property while Taylor has a 60% interest. Each owner has the right to occupy and use the entire property, however. The interest percentage simply determines the financial ownership of the real estate.
Unlike joint tenancy, tenants in common hold title individually for their respective portion of the property and can dispose of or encumber it at will. Ownership can be willed to other parties, and in the event of death, ownership will transfer to that owner’s heirs undivided.
Sole Ownership is best described as ownership by an individual or entity. The most common sole ownership is held by single people, or married people who hold property apart from their spouse, along with businesses that have a corporate structure allowing them to invest in or hold interest in real estate.
The main advantage of holding the title as a sole owner is the ease with which transactions can be accomplished because no other party needs to be consulted to authorize the transaction. The obvious disadvantage is the potential for legal issues regarding the transfer of ownership should the sole owner die or become incapacitated. Unless specific legal documentation, such as a will, exists, the transfer of ownership upon death can become very problematic.
Community Property is a form of ownership by spouses during their marriage that they intend to own together. Under community property, each spouse owns (or owes) everything equally, regardless of who earned or spent the money. Thus, each spouse gets an equal division of real estate property in the event of divorce or death.
Community property with the right of survivorship is a way for married couples to hold title to property and it allows one spouse’s interest in community-property assets to pass probate-free to the surviving spouse in the event of death.
Real estate also can be owned by a Trust, which owns the properties and is managed by a trustee on behalf of the beneficiaries to the trust. There are many advantages relating to taxation as well as disbursement of assets in an estate that relate to holding title in a Trust.
Title to real estate is the method by which ownership is conveyed and transferred during real estate purchases and sales. If you are in a purchase or planning your estate, you will find yourself needing to determine the best method to hold title. Take your time to conduct thorough research to determine the unique differences for each method as it applies to you.
I have business relationships with financial planners, estate planning attorneys, and tax attorneys and am happy to refer you to those I have consulted with in the past so you can make the best financial decision for you and your future.