Think about all of your assets. Your home is probably the most valuable asset you own. Most people don’t even think about how to hold title until a title company asks the question when you buy or refinance. The way you hold title to real estate has far-reaching and serious effects.
Here are some common ways to hold title:
Individual Name: Even if you are married, you can hold title in your name only. There are drawbacks with this. What would happen if you become mentally or physically incapacitated and the property needs to be refinanced? In this situation, a court will appoint someone to make decisions on your behalf. Even a will won’t help you in this matter as a will only goes into effect after you die. A power of attorney could end up giving the appointed person too much power over your assets. Once the court is involved, it will stay involved until you recover or die.
What happens when you die? If the title is only in your name, the property will most likely have to go through probate court before being distributed to your heirs (even with a will). Since your name in on the title, and you’ve died, you can’t sign your name to transfer title.
Joint Tenants with Right of Survivorship: This is how most married couples hold title, because it seems fair, it’s easy and it’s free. Parents and their adult children also often hold title this way, as do unmarried couples.
When one owner dies, full ownership does transfer automatically to the surviving owner without probate. But usually this just postpones probate. If the surviving owner dies without adding another owner (which often happens), or if both owners die at the same time, the property will almost certainly have to go through probate before it can go to the heirs.
There are other problems, too. When you add a co-owner, you lose control. With real estate, all owners must sign to sell or refinance. If your co-owner disagrees with you, you could end up in court. If your co-owner is incapacitated, the court will probably get involved to protect your co-owner’s interest (even if the ill owner is your spouse).
You expose the property to your co-owner’s debts and obligations; you could even lose your home to your co-owner’s creditors if he or she is successfully sued. There could also be gift and/or income tax problems if your co-owner is not your spouse.
Finally, because a will does not control jointly owned assets, you could disinherit your family when your co-owner inherits your share. Sadly, and all too often, children from a previous marriage are disinherited when a new spouse is the surviving owner.
Tenants-In-Common: With this kind of ownership, each owner’s share will be distributed as directed in his or her will. If there is no will, the property will go to the owner’s heirs.
The problem with tenants-in-common is that you could find yourself with several new co-owners when your co-owner dies and the heirs inherit the property. Imagine how difficult it could be to get several owners to reach an agreement, especially if you are trying to sell the property.
You can also run into the other problems (incapacity, lawsuits, etc.) as explained under joint tenants with right of survivorship, but with several owners involved, your risks and problems are multiplied.
Tenants-by-the-Entirety: This form of joint ownership, available between spouses in some states, is similar to joint tenants with right of survivorship in that when one spouse dies, his/her share automatically goes to the surviving spouse, even if the will says otherwise. So you have many of the same risks, including unintentional disinheriting and court interference if one spouse becomes incapacitated.
However, as tenants-by-the-entirety, neither spouse can transfer his/her half to someone else without the other’s approval – something joint tenants with right of survivorship and tenants-in-common can both do.
Revocable Living Trust: When you have a living trust, the title of your real estate can be held in the name of the trustee of your trust. Usually you will be your own trustee, so you keep full control of the property. You can buy, sell and refinance real estate just as you can when the property is not in your trust.
If you become incapacitated, the successor trustee you named when you set up your trust will be able to step in and act for you. Because the title is no longer in your individual name (or joint names if married), there will be no need for court interference. If you are married, you and your spouse can be co-trustees, in which case your successor trustee would step in only after you have both become incapacitated or have died.
Your successor is legally obligated to follow the instructions you put in your trust. If you recover, your successor simply steps aside and lets you resume control. When you die, the property will be distributed without probate according to the instructions in your trust, so you don’t have to worry about unintentionally disinheriting someone.