Keith Mack
Holding title to property is a critical aspect of estate planning, and there are various ways to do so, each with its own advantages and disadvantages. The chosen method of holding title can have far-reaching consequences for estate planning, long-term care planning, and liability. It is therefore important to carefully consider the different options and consult relevant professionals to determine the best course of action. This article will explore the different ways to hold title to property, including sole ownership, joint tenancy, tenancy by entirety, community property, and trust ownership, and provide an overview of the legal and practical implications of each.
| Characteristics | Values |
|---|---|
| Title holder | An individual, multiple people, a business entity, or a trust |
| Types of title holding | Sole ownership, joint tenancy, tenancy by entirety, community property, tenants in common |
| Joint tenancy | Two or more people hold the title jointly, with rights of survivorship |
| Tenancy by entirety | Allowed in some states, only if the owners are legally married |
| Community property | Only in effect in nine US states, it is a form of joint ownership between spouses |
| Tenants in common | Allows one owner to use their portion of the property as collateral for financial transactions |
| Corporate ownership | A legal entity owned by shareholders holds title to the property |
| Partnership ownership | Two or more people own the property as co-owners |
| Trust ownership | A legal entity that owns the property, managed by a trustee on behalf of beneficiaries |
| Title transfer | The title must be transferred when the property is sold or inherited |
| Clear title | The title must be free of liens or encumbrances for a clear transfer of ownership |
| Title search | Routine for purchases of expensive property, and required by law in some US counties |
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Joint tenancy
There are four conditions that are required for a joint tenancy: Time, Title, Interest, and Possession. All joint tenants must acquire their ownership interests in the property simultaneously, and the document must specify a joint tenancy vesting. Each joint tenant shares an equal interest in the property—both in terms of financial responsibility and benefits. If they decide to rent out the home to another individual or if they sell the property, each party is entitled to an equal share in the profits.
A unique feature of joint tenancy is the right of survivorship. When one joint tenant dies, their share of the property automatically transfers to the surviving tenant(s), bypassing the probate process. This allows for a seamless transfer of ownership without the need for court intervention. The right of survivorship supersedes even a will, and the property automatically transfers to the surviving owners if one owner dies.
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Tenants in common
When it comes to real estate, there are several ways to hold the title. One such way is through tenants in common. This is a type of shared ownership where tenants obtain varying shares of a property. Unlike joint tenancy, where each tenant owns an equal share, tenants in common can own different percentages of the entire property. For example, one tenant could own 30% while the other two own 35% each. However, this does not mean that certain areas of the property are restricted based on ownership percentage; each owner has access to the entire property, which is called undivided interest.
When conveying property to two parties as tenants in common, the preferred language in property law is: "O conveys X property to A and B as tenants in common." This type of ownership is ideal for groups of people looking to share property, such as married couples who want to designate specific beneficiaries for their share of the property.
It is important to note that in a tenancy in common agreement, the property is not legally divided, so tax jurisdictions typically issue a single property tax bill. Tenants can then deduct payments from their income tax filings, and in some cases, they can deduct a percentage of the total tax based on their level of ownership.
When mortgaging property as tenants in common, all borrowers sign and agree to the loan agreement. However, if one borrower defaults on their payments, the lender may seize the holdings from all tenants, and the remaining borrowers are still responsible for the full loan repayment. Therefore, it is crucial to carefully consider all options and consult legal or real estate experts before deciding on a tenancy agreement.
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Sole ownership
For example, a person may buy a commercial property, such as a store, warehouse, restaurant, or office building, in their own name. They can also own a house or other property as an individual. In the case of married couples, one spouse may decide to hold the property separately from the other, although there are exceptions.
While sole ownership is straightforward, it offers little liability protection from third parties. Any action against the individual may allow a creditor to attach the property to satisfy a debt. As a result, some business owners create trusts or set up entities to hold the title to the property.
When an individual with sole ownership passes away, the property will typically have to go through probate, which can be a costly and time-consuming process. During probate, the property will be distributed as part of their estate.
It is important to carefully consider how to hold the title to real estate, as it can have far-reaching effects. Different states and countries may have specific laws and regulations regarding sole ownership and property titles. Seeking legal advice can help individuals make informed decisions about how to hold title to their property.
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Community property
In the United States, community property refers to a state-level legal distinction designating a married individual's assets. There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Four other states have adopted optional community property systems: Alaska, Tennessee, Kentucky, and Florida. Additionally, Puerto Rico and several Native American jurisdictions recognize community property laws.
Under community property laws, any income and any real or personal property acquired by either spouse during a marriage are considered community property and thus belong to both spouses equally. This includes financial and real assets, such as real estate, bank accounts, and vehicles. In some jurisdictions, community property is divided strictly in half, with each spouse receiving 50% of the assets. In other jurisdictions, a judge may divide the assets in any denomination considered equitable for both spouses.
The concept of community property originated in civil law jurisdictions, such as Spain, France, and Germany, where spouses can generally select from several matrimonial regimes to divide property. It has also been traced back to ancient Egypt and Greece, with legal features still present in the Code of Hammurabi. The idea behind community property ties to ancient Roman society, where the family was a basic social unit. While early Roman marriage laws disallowed wives from owning property, later Roman law allowed wives to own property in their name, giving rise to the dowry system.
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Trust ownership
Trusts are a widely used legal entity, especially in countries with a history of English law, such as the United States. Trusts are often used for intrafamily wealth transfers, but they are also important in capital markets, particularly through pension funds and mutual funds.
In a trust, the owner of the property or any transferable right is known as the "settlor" or "trustor", and they give the property to another party, the "trustee", to manage and use for the benefit of a designated person, the "beneficiary". The property in the trust is known as the "corpus" or "trust property". Trusts can be established during the settlor's life (inter vivos trust) or after their death (testamentary trust). Testamentary trusts are generally irrevocable, while living trusts can be revocable or irrevocable.
In a revocable trust, the settlor may control the trust and maintain full authority over the assets and terms of the trust while they are alive and mentally capable. The trust itself owns any property that has been retitled and transferred into it during the settlor's lifetime. The settlor designates trusted individuals or a corporate entity to serve as trustees, who are responsible for managing and distributing the assets according to the settlor's wishes.
Irrevocable trusts, on the other hand, involve the settlor giving up control and ownership of their assets. These assets are then no longer considered part of the settlor's estate, which helps to minimise estate taxes after their death. Irrevocable trusts are more expensive to establish than revocable trusts.
Trusts can be useful for privacy, as the terms of a will are public in certain jurisdictions, while the terms of a trust are not. Trusts can also be used to protect beneficiaries who may not be able to handle money, and they can help an estate avoid probate.
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Frequently asked questions
A title in law is a document that lists the legal owner(s) of a piece of property.
There are several ways to hold a title, including sole ownership, joint tenancy, tenancy by entirety (TBE), community property, and tenants in common (TIC).
The transfer of a title is dependent on the type of property and the location. In the case of real estate, the legal instrument used to transfer a title is a deed.
Joint tenancy is when two or more people hold the title to real estate jointly. This type of title is common among married couples as it is fair, uncomplicated, and free.
Tenancy by entirety is a form of joint ownership that is only available to married couples in some states. In this form of ownership, the couple is treated as one person for legal purposes, and upon the death of one spouse, the title is automatically transferred to the other.
