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7 Ways to Hold Title to Property

Posted by Daniel J. Eccher, Esq. | Feb 05, 2020

For many people, real estate, including their home, is a big part of their overall net worth.  How the home and other pieces of real estate are titled deserves careful consideration. Real estate constitutes the land, any structures, and vegetation, crops, and other natural resources that sit on the land under the state's law. Ultimately, how you hold a property title has far-reaching consequences for estate planning, long-term care planning, and liability, and when it comes time for sale or the bequeathing of it as an inherited asset.

The title is a reference to the document that lists the legal owner(s) of a piece of property. The title for real estate, by law, must be transferred if the asset is sold or inherited, and the title must be clear for the title transfer to take place. A clear title is free of liens or any other encumbrance posing a threat to proper ownership. The most common types of real estate titles are sole ownership, joint tenancy, tenancy in common, and, in some states, tenants by the entirety and community property. Less common property ownership titles are corporate or partnership ownership and trust ownership.

Sole ownership (or Individual name ownership) allows for a single person to hold title, even if that person is married. If the person becomes mentally or physically incapacitated due to injury or illness, a spouse or family member typically will need to conduct business with regards to your property. Your family member will not be able to do business transactions like refinancing or changing lines of credit, and they will be unable to act until a court appoints someone to act on your behalf. Many people assume if they have a will it will address the problem, yet a will does not go into effect until after you die and is not in effect if you become incapacitated.

Joint tenancy is when two or more people hold the title to real estate jointly (some deeds may include the phrase, “with rights of survivorship”). This type of title is widespread among, but not exclusive to, married couples. Unmarried couples may also hold joint tenant title as can parents and their adult children. It is a fair, uncomplicated, and free way to hold the title. In the case of a couple, the death of one automatically transfers full ownership to the surviving owner without probate. However, probate is more than likely just postponed. In the event the surviving owner dies without adding another owner, or if both owners die at the same time, probate is almost certain to occur before the property can go to the heirs.

Being a joint tenant means that to sell, refinance, or take any action to the property, both (or all) owners must agree to the business action. If there is disagreement or in the event your co-owner becomes incapacitated, a court may have to be involved to resolve the disagreement or to protect the interest of the person who has become incapacitated. A court may need to be involved even if the incapacitated owner is your spouse. Joint tenancy also exposes the property to both of the co-owners' obligations and debts. If a creditor successfully sues your co-owner, you could lose your home. In the case a co-owner is not a spouse, there can be income tax or gift tax problems. A will does not control any jointly owned assets, and you may mistakenly disinherit your family when your co-owner inherits your share, particularly in the case of second marriages with children from a previous union.

Holding title as tenants in common (TIC) allows for two or more people to hold title to real estate with equal rights during their lifetime to enjoy the property. A tenant in common title creates shares of ownership, and those shares will be distributed as directed in a will upon an owner's death. In the absence of a will, the property goes to the heirs of the owner. As a tenant in common individually holds title for a respective part of the property, they are at liberty to dispose of said owned property or encumber it at will. Owners of their respective shares are permitted to use their portion of the property as collateral or in financial transactions. They may also be sued or have creditors place liens on only their portion of the property.

Corporate ownership allows a corporate entity, such as a company owned by shareholders, to hold title to property. Partnership owners can own real estate as a partnership. This title constitutes two or more people who transact business for profit as co-owners. There are also limited partnerships where an investor has limited liability because they do not make management decisions regarding business transactions of the property. In a limited liability partnership, one general partner will typically be responsible for making business decisions on behalf of the identified limited partners.

Trust ownership is a legal status in which a trustee or group of trustees holds title to the real property for the benefit of trust beneficiaries. In the event a trustee becomes incapacitated, a successor trustee named in the trust agreement can seamlessly take control of the trust without court interference. A successor trustee is legally obligated to follow the instructions put forth in your trust. If the trustee recovers from incapacity, she or he can resume control of the trust. If you have property in a trust when you die, the property would be distributed according to your trust instructions and without probate. Holding real estate in trust ownership has challenges related to financial and legal liability, managerial influence, and tax considerations. A real estate trust document can provide significant advantages to property owners but only if created by competent legal advisers who consider the complexities of your specific situation.

Tenancy by entirety (TBE) is allowed in some states, and it is permissible only if the owners are legally married. This title, for purposes of ownership, treats the couple as one person for legal action and interpretation. Upon the death of one person, the TBE title is transferred in its entirety to the other spouse. (This type of title to real estate is not effective under Maine law.)

Community property is only in effect in nine states (AZ, CA, ID, LA, NV, NM, TX, WA, and WI) and is a form of joint ownership between spouses. If you own real estate in a community property state when you die, your share of the community property is automatically transferred to your surviving spouse unless your will provides otherwise. Survivors of decedents in community property states can find themselves with several new co-owners, who, upon their death, can have their heirs inherit the property. Also, issues of incapacity and lawsuits are magnified if several property owners are trying to reach a consensus about the sale of the property or other business actions.

Methods of holding and owning title to real estate property are determined by state law and, as such, must be considered when researching and determining the best method to acquire and hold title to real property where you live. Depending on the complexity of your situation, assessing the best way to title your real estate may require professional real estate, legal, and tax guidance.  We help clients determine the best way to hold title to property, and whether a trust would be beneficial.

If you have any questions or need guidance in your own estate planning or planning for a loved one, please do not hesitate to contact our Winthrop, Maine office by calling (207) 377-6966. 

About the Author

Daniel J. Eccher, Esq.

Daniel J. Eccher, Esq. is the Managing Shareholder at Levey, Wagley, Putman & Eccher, P.A., in Winthrop, Maine. Dan's favorite problem to solve is helping clients figure out how to afford long-term care while having something left for their family.

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