For many people, real property, including their home, is a big part of their overall net worth. How the home and other pieces of real property is titled deserves careful consideration. Real estate constitutes the land and any structure, including vegetation, livestock, crops, and other natural resources that sit on the land under the state’s law. Real estate can be commercial or residentially owned. Ultimately how you hold a property title has far-reaching consequences for liability, and when it comes time for sale or the bequeathing of it as an inheritable asset.

The title is a reference to the document that lists the legal owner(s) of a piece of property and can depict ownership of both personal and real property. Real estate titles are regarded as real property as it is a tangible asset. The title for real property, by law, must be transferred if the asset is sold or inherited and 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 joint tenancy, tenancy in common, tenants by the entirety, sole ownership, and community property. Less common property ownership titles are corporate, partnership, and trust ownership.

Individual name or sole ownership allows for a single person to hold title, even if you are married. If the person becomes mentally or physically incapacitated due to injury or illness or die this is a one way ticket to the probate court! A spouse or family member typically will need to conduct business with regards to your property and they will not have any legal powers until the probate court allows them to act. 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. Also, a Will is your admission ticket to probate court and your spouse or children will incur legal and court fees along with stress and delays. 

Joint tenants (some may have rights of survivorship) occur when two or more people hold the title to real estate jointly. 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 to be 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. This is very common and not recommended. 

Being a co-owner means that to sell, refinance, or take any action to the property, both owners must agree to the business action. If there is disagreement or in the event your co-owner becomes incapacitated, the court will become involved to resolve the disagreement or to protect the interest of the one who has become incapacitated. Court involvement will occur even in the event the incapacitated owner is your spouse. Joint tenants also expose 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.

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 and into your estate through the expensive and lengthy probate process. 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.

Tenants by entirety (TBE) are only permissible 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 is advantageous as no legal action is necessary upon the death of one’s spouse. It does not require a will and probate is unnecessary on the first to die. However, again all your doing is delaying probate and when the surviving spouse dies the kids will be dealing with the messes and stresses and expenses of probate court.   

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 commonly referred to as community property. When you die, your share of the community property is automatically transferred to your surviving spouse unless your will provides otherwise. Both tenants, by the entirety and community property titles, can find the remaining owner 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. 

Corporate ownership allows a legal entity, 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 the case of limited liability, a singular general partner will typically be responsible for making business decisions on behalf of the identified limited partners.

Trust ownership, BEST CHOICE most often in the format of a Revocable Asset Protection Trust (RAPT) or Irrevocable Medicaid Asset Protection Trust (MAPT) or Veterans Asset Protection Trust (VAPT), is a legal entity that owns the real property, which is managed by a founding or designated trustee on behalf of all trust beneficiaries. In a Living trust in the event you become incapacitated, your named successor trustee can seamlessly take control of your trust without court interference. A successor trustee is legally obligated to follow the instructions put forth in your trust. If you recover from incapacitation, you resume control of your Living trust. If you were to die, the property would be distributed according to your trust instructions and without probate. A real estate trust document can provide significant advantages to property owners but only if created by a competent attorney who takes into account the complexities surrounding the trust and your goals of protecting the property from the “4 Headed Monster” of Probate Court, Estate Taxes, Financial Creditors & Predators and the $15,000.00 per month nursing home. 

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. Give us a call – we would be happy to help.

To learn more attend our next free educational estate planning and elder law workshop because you will learn a lot. Contact our friendly elder law care team at 781-871-7526 or contact pat@elderlawcare.com to register for the next workshop because we fill up quickly.

Patrick Kelleher is an Estate Planning & Elder Law attorney and founder of the elder law care learning center in Hanover Massachusetts. Patrick has been teaching free educational workshops for over 10 years at his learning center and surrounding communities. Learn more at elderlawcare.com or follow Patrick Kelleher on Facebook because you will learn a lot!  Offices in Hanover and Quincy.