27th Jul 2015

What is the best way to hold title to real estate?

The answer depends on the property owner’s personal situation and real estate goals. Is the major goal to avoid probate costs and delays when a sole owner dies? Do parents want to be sure their adult children receive the property without probate? Are there multiple, unrelated owners, such as investors? Here are the pros and cons of the five most widely used methods of holding title to your real estate.

If you are single, you probably hold title to your real estate in your name alone. This is called sole ownership or ownership in “severalty.” This ownership method is also available when a married person takes title in his or her name alone. Usually, the spouse is asked to sign a quitclaim deed that gives up any ownership claim. Sole ownership might be appropriate, for example, when a husband invests in fixer-upper properties and his wife isn’t involved with realty investments. Sole ownership’s disadvantages include lack of tax advantages and the inclusion of probate cost and delays when the owner dies. But most single owners use this title method because they are not aware of a better alternative.

Two or more realty co-owners, usually not married to each other, often takes title as tenants in common. To illustrate, recently a business associate told me her parents deeded their home to her and her three siblings as tenants in common. However, a potential problem has already arisen because one of the siblings might have to file bankruptcy. As a tenants in common advantage, each owner can own a specific, unequal share. For example, one might own a 25 percent interest, another a 50percent share, another 10 percent and the fourth 15 percent.

Husbands and wives who own real estate in California , Nevada, Louisiana, Wisconsin, Texas, Arizona, Washington, Idaho and New Mexico can take community property. Each spouse owns 50 percent of the property, and the shares can be passed by will to either the surviving spouse or someone else, such as a child. A major tax advantage for community property assets willed to a surviving spouse is a new stepped-up basis to market value on the date of death for 100 percent of the property’s market value.

Since the living trust is revocable, it can be amended as circumstance change. However, if a trustor becomes incompetent and unable to manage affairs, the alternate trustee (such as spouse or adult child) takes over management of the trust assets. When the trust dies, the living trust assets are distributed according to the trust’s terms.