DISCLAIMER: This blog post should not be construed as legal advice.
When purchasing real estate, deciding how to take title is one of the most important choices you'll make. How you hold title impacts ownership rights, inheritance, tax obligations, and other legal aspects. The most common methods include joint tenancy, tenancy in common, tenancy by the entirety, and community property. Each has its unique characteristics and legal implications. Below, we break down the main ways to take title and how each may affect your ownership.
1. Joint Tenancy
Joint tenancy is a type of ownership where two or more parties hold equal shares of the property. One of its defining features is the right of survivorship, meaning that if one owner dies, their share automatically passes to the surviving owners.
Key Characteristics:
Right of Survivorship: Upon the death of an owner, their share is transferred directly to the surviving joint tenants without the need for probate.
Equal Shares: All joint tenants have an equal share in the property, regardless of their contribution to the purchase.
Unity of Time and Title: All parties must acquire their interest in the property at the same time and through the same deed.
Pros and Cons:
Pros: Avoids probate; simplifies the transfer of ownership upon death.
Cons: Owners cannot leave their share to someone else in a will, as the right of survivorship overrides such provisions.
Best Used For:
Couples or business partners who want the property to pass seamlessly to the other owner upon death.
2. Tenancy in Common
Tenancy in common (TIC) allows two or more individuals to own a property together, with each holding an individual, divisible interest. Unlike joint tenancy, there is no right of survivorship in tenancy in common; each owner can pass their share to heirs or designate beneficiaries in a will.
Key Characteristics:
Different Ownership Shares: Owners can hold unequal shares of the property.
No Right of Survivorship: Upon an owner's death, their share can be inherited by someone other than the surviving owners.
Independent Ownership: Each co-owner can sell or transfer their share independently of the others.
Pros and Cons:
Pros: Flexibility in ownership shares; allows shares to be passed to heirs.
Cons: Potential for disputes if one owner wants to sell their share or disagreements arise regarding property use or management.
Best Used For:
Friends, family members, or investors who want to co-own property with individual rights and the ability to will their share to someone else.
3. Tenancy by the Entirety
Tenancy by the entirety is a special form of joint ownership available only to married couples. It offers protection from individual creditors, as one spouse’s debts generally cannot be attached to the property without the other’s consent. Like joint tenancy, it comes with the right of survivorship.
Key Characteristics:
Limited to Married Couples: Only legally married spouses can hold title this way.
Right of Survivorship: Upon the death of one spouse, the surviving spouse automatically inherits the entire property.
Creditor Protection: Creditors of one spouse cannot force the sale of the property to satisfy debts.
Pros and Cons:
Pros: Strong creditor protection; seamless transfer to the surviving spouse upon death.
Cons: Both spouses must agree to any sale or transfer of the property.
Best Used For:
Married couples who want maximum protection from individual debts and a straightforward transfer of ownership upon the death of one spouse.
4. Sole Ownership
Sole ownership means that one individual holds full and exclusive ownership of the property. This is the most straightforward form of property ownership.
Key Characteristics:
Complete Control: The sole owner can manage, sell, or transfer the property as they see fit.
Individual Responsibility: The owner is solely responsible for any debts or liabilities associated with the property.
Pros and Cons:
Pros: Full control over the property and decisions.
Cons: No right of survivorship; property must go through probate upon the owner’s death.
Best Used For:
Single individuals who want full control over the property and plan to manage it independently.
5. Living Trust
Holding property in a living trust allows the property owner (the grantor) to transfer title to a trustee, who manages the property according to the trust's terms. This arrangement helps avoid probate and can provide additional privacy and control over the distribution of assets.
Key Characteristics:
Probate Avoidance: Property held in a trust bypasses probate, simplifying the transfer to beneficiaries.
Flexibility and Control: The grantor can change the terms of the trust during their lifetime.
Privacy: Trusts are not part of public record, unlike wills.
Pros and Cons:
Pros: Avoids probate; offers more control over how assets are distributed.
Cons: Setting up a trust can be more complex and expensive than other methods.
Best Used For:
Individuals or families looking to simplify the estate planning process and ensure the seamless transfer of assets.
Choosing how to take title to property is a critical decision that impacts ownership rights, tax obligations, and inheritance. Joint tenancy and tenancy in common are popular for co-owners, while tenancy by the entirety is tailored for married couples. Sole ownership and holding property in a living trust provide straightforward options for individual ownership or estate planning.
Consulting with a real estate attorney or financial advisor can help you understand which type of ownership best suits your specific needs and long-term goals.
If you have questions, please reach out to Curington Law, LLC today. We’re here to help you make informed decisions and achieve your real estate goals.
