Real estate title

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

Originally Posted by Unregistered

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; namely,

1. SoleOwnership - 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.

2. Tenant's in Common - 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.

When one tenant in common dies, the share passes according to the terms of that tenant's will. For this reason, tenancy in common is especially popular in second marriages because the co-owners can will their shares to children from a prior marriage. This can become a disadvantage, however, if the inheriting co-owner doesn't get along with the other tenants in common. Also, tenancy-in-common shares are subject to probate court costs and delays.

A further tenancy-in-common disadvantage, also applicable to joint tenancy, is that one tenant in common can force a sale of the property even when the other co-owners do not wan to sell. Such a legal action is called a partition lawsuit in which the court orders the property sold and the proceeds divided among the tenants in common (or joint tenants).

3. Joint Tenancy with Right of Survivorship - The most popular way for husbands and wives to hold title is joint tenancy with right of survivorship. All joint tenants must take title at the same time and hold the same interest.
When one Joint tenant dies, the surviving joint tenant(s) automatically receives title without probate costs and delays. All that is usually required is a certified copy of the death certificate and for the survivor to record an affidavit of survivorship. The deceased's will has no effect on joint tenancy property. With joint tenancy, one joint tenant can convey his or her share without the other joint tenant's approval, thus ending the joint tenancy and creating a tenancy in common. As mentioned earlier, a joint tenant can bring a partition lawsuit to force a sale of the property if the other owners do not want to sell.

However, in a few states, joint tenancy by the entireties between husbands and wives is available. The big entireties' advantage is that one spouse cannot convey his or her share of the property without the other spouse's signature.

4. Community Property - 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.

In 1987, the IRS extended this community property stepped-up market value basis to husbands and wives holding joint tenancy titles in community property states. IRA Revenue Ruling 87089, however, requires spouses to acknowledge in writing to each other (before one spouse dies) that the joint tenancy property is also community property.

5. Living Trust - Probably the best method of holding title to homes and other major assets is in a revocable "inter vivos" living trust to avoid probate costs and delays. The only disadvantages are the legal fees up to about $1,000 and deeding the properties into the living trust. Until the death or disability of the trust creator, the home and other realty bank accounts, and stocks and bonds can be managed, bought and sold as before.

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.

Privacy is a major living trust advantage. Unlike a will, which becomes part of the public probate file of a deceased, the living trust terms remain private (except in South Dakota).

[annjd]

helpful info, thanks!