Category Archives: Tenancy

Confused About How to Hold Title to Your Property? Here Are Your Options

Sandy Gadow

One of the most important decisions that needs to be made at closing is how you choose to hold title. It determines how you will be insured, but it can also have significant legal and tax consequences.

For example, there is an option available to married couples that provides protection from creditors in the event of the death of one of the spouses. There is also an option that affords a “right of survivorship” between unrelated owners. If not set up correctly, how you hold title can create unanticipated complications when you decide to sell or transfer the title to someone else.

Several years ago a married couple decided to take title to their house as “Joint Tenants” or joint owners. The husband had children from a previous marriage and intended to will his share of the property to his children. He was not aware that when one Joint Tenant dies, his or her interest automatically passes to the surviving owner and by law cannot be willed to anyone else. Fortunately, the couple discovered this stipulation before closing, and took title instead as “Tenants in Common.”

There are six common ways to hold title, and the first three are reserved exclusively for married couples.

Tenancy by the Entirety

This is a special type of joint tenancy with rights of survivorship that is recognized between married couples including same-sex marriages in Alaska, Arkansas, Delaware, Florida, Hawaii,Illinois, Indiana, Kentucky. Maryland, Massachusetts,  Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina,Oklahoma, Oregon,Pennsylvania, Rhode Island, Tennessee, Vermont, Virginia, Tennessee and Wyoming. In order to form a Tenancy by the Entirety, a couple must acquire the property at the same time and the title to the property must be granted by the same instrument. Additionally, both partners must share the same interest in the property and must hold equal rights to possession of the property.

Property held under Tenancy by the Entirety cannot be sold, mortgaged, or used as collateral by one spouse without the consent of the other spouse. It allows spouses to own property as a single legal entity, offering protection to a surviving spouse from creditors of the deceased spouse. Tenancy by the Entirety cannot be used in Community Property states.

Community Property

Community property is a legal distinction that determines ownership of a married couple’s assets and is available in Arizona, California, Idaho, Louisiana,Nevada, New Mexico, Texas, Washington and Wisconsin. Property held in this manner does not have to pass through probate when one spouse dies, and the title passes directly to the other spouse. It is similar to holding title in Joint Tenancy, but it is limited to married couples or registered domestic partners.  Although Alaska, Florida, Kentucky, South Dakota and Tennessee are not a community property states, they have an opt-in community property law. Spouses can designate their property by community property standards by way of a property agreement to by establishing a community property trust.

Community Property With Right of Survivorship

In Community Property ownership all assets obtained during the marriage are owned 50/50 but any assets acquired by a spouse prior to the marriage still belongs to that spouse alone. If the asset-owing spouse dies, the asset (a house) would not be inherited by their surviving spouse unless specifically stated in a will. To avoid probate or other problems, coupes can instead take title as Community Property with the Right of Survivorship. This is a fairly new designation of ownership and it ensures that when one spouse dies, their half of a shared community property goes directly to the other spouse—and to no one else.  Survivorship with Community Property is only available to married couples or registered domestic partners in  these sates: Alaska, Arizona, California, Idaho, Nevada, and Wisconsin.  To turn property into Right of Survivorship community property you simply put the words on the title deed. Spouses are free to change their minds and remove the survivorship provision later, but it must be done in writing in a new deed.

Sole and Separate property

Sole and separate property means that no one else has any interest in the property. If you are married and want to take title this way, you should record a quitclaim deed from your spouse to yourself so that no “community interest” could be claimed at a later date. This applies only in community property states.

Joint Tenancy

The distinguishing characteristic of Joint Tenancy is the right of survivorship. If one of the joint tenants dies, his or her interest automatically passes to the surviving party or parties instead of being tied up in lengthy probate proceedings. Joint tenants own an undivided equal interest in the property and have the same rights to the use it. For example, neither co-tenant can distinguish which portion of the property he or she owns. Once a joint tenancy has been created, no joint tenant can sell his or her interest without terminating the joint tenancy. If either sells his or her interest, the buyer comes in as a tenant in common rather than as a joint tenant.

Tenancy in Common

When two or more people buy property together, whether their shares are equal or unequal, they can hold the property as Tenants in Common.Tenancy in Common is so standard as a form of ownership for unrelated buyers that it is generally presumed to be the way they hold title if nothing else appears to the contrary. The shares are also presumed to be equal, unless they are listed otherwise on the deed, and each of the tenants has equal rights of possession. Each co-tenant owns an undivided interest, but unlike a Joint Tenancy, these interests need not be equal, may arise from different conveyances, and do so at different times.

At some point, you may decide that you want to change the way you hold title to, for example, place the property in trust for a child or to

gift property to adult children. It can be a relatively simple matter to change the form of ownership. Single people can use a Quitclaim Deed to transfer the property from themselves to themselves in the new category in which they wish to hold title. Married couples would follow the same procedure using an inter-spousal deed.

Alternate Ways to Hold Title

Other ways to hold title (often used for estate planning purposes) are revocable trusts or living trusts where of one of the spouses has part ownership of the home among two trusts, or variations of these types of ownership. Limited Liability Partnerships (LLC) can be an option in other circumstances.

Depending on your area’s regulations, you may need to use particular wording in your deed, so it is a good idea to get the advice of a professional or lawyer first. You will need to get the deed acknowledged before a notary public, and then have it recorded at the clerk’s land records office.

Sample Quitclaim Deed

Sandy Gadow

Here is a sample quitclaim deed taken from the pages of The Complete Guide to Your Real Estate Closing. A quitclaim is a deed in which the grantor releases any claim he may have on a property. This is most commonly used between spouses and in partnerships.

See What are the most common ways to hold title? on our Question and Answer page for more information.

quitclaim

Is There Another Way to Hold Title Which Is Unique to Husband and Wife?

Sandy Gadow

Another way to hold title which is unique to husband and wife is Tenancy by the Entireties. Tenancy by the entireties is similar to Joint Tenancy in that it has the same automatic survivorship feature, but in Tenancy by the entireties, both spouses must sign the deed before any transfer of title can take place. Tenancy by the entireties is allowed in the following states: Alaska, Arkansas, Delaware, Florida, Hawaii, Indiana, Kentucky, Maryland, Massachusetts, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, Vermont, Virginia, Wyoming, and the District of Columbia.

What is a Trust and Should I Create One?

Sandy Gadow

A trust is an arrangement which dictates how your assets are to be managed and distributed. Trusts are typically established to save taxes, avoid probate, control trust assets, and protect Beneficiaries. Trusts can be written so that they can be either permanent (irrevocable) or changeable (revocable). There are three parties to a trust: the Grantor, the person who creates the trust by signing a trust agreement and transferring assets to the trust to be managed by the Trustee, the person or trust company, who holds title to the property for the benefit of the Beneficiaries, or the individuals for whose benefit the trust is created.

If the purpose of creating a Trust is to avoid probate and provide for the possible loss of capacity, then the Trust is typically written as revocable or changeable. In a revocable Trust, the Grantor retains the right to change the terms of the Trust or terminate it at any time until death. If the purpose of the Trust is to obtain either present or future tax benefits, then the Trust is typically irrevocable. The Grantor gives up all rights to the property placed in the Trust and would generally be unable to modify or revoke the terms of the Trust.

A trust can be established when one is living (Living Trust) or it can be automatically created upon the time of death (Testamentary Trust). The Living Trust or “inter-vivos” trust is established during a person’s lifetime for the benefit of that person or of other beneficiaries. A testamentary Trust is established under a Will and becomes effective upon death, in which case the will and Testamentary Trust would be subject to probate.

To determine if you should create a trust, consult with your tax advisor or attorney, as each person’s circumstances differ. A qualified advisor can draft your trust agreement tailored to fit your specific needs.

In many cases, trusts help save taxes, help retain control over trust assets, and protect beneficiaries.

This column may not be resold, reprinted, resyndicated, or redistributed without the written permission of Escrow Publishing Company.

Do I Live In A Community Property State?

Sandy Gadow

Holding title to real property as Community Property is a type of ownership available to married couples only. There are currently nine states which offer Community Property status. These states are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. The “marital property act” defined Wisconsin as a community-property state, but individual circumstances will dictate how this act is interpreted.

The property laws in these nine states look at property purchased during a marriage as community property and both husband and wife have an equal right to possess the property during their marriage. In some states, upon the death of either spouse, the surviving spouse automatically receive half of the community property. With community property, neither spouse may sell his or her own share. To transfer the property to someone else, both husband and wife must sign the deed. When one spouse dies and leaves no will, the surviving spouse may acquire the property, but unlike joint tenancy, either spouse may will his half interest to others if he or she so chooses.

Community property laws may become complex, especially when dividing up assets upon a dissolution of the marriage. You may have heard of the divorced couple in which the ex husband filed for his share of the proceeds of the lottery winnings of his former wife. Apparently, his wife had won the lottery, while they were still married, and failed to tell her husband of her winnings. They then divorced and the wife did not reveal these lottery winnings as assets at the time of the dissolution. The husband found out some time later, filed for his share in court, and was awarded the full amount of the lottery money. This occurred in a Community Property state, where all assets of a married couple acquired during the marriage are considered “community property.” If you have any doubts as to Community Property law in your state, you may want to consult with an attorney, to be certain what the implications are of holding title as community property.

This column may not be resold, reprinted, resyndicated or redistributed without the written permission from Escrow Publishing Company.

Can Unmarried Persons Hold Title As Joint Tenants?

Sandy Gadow

Many times two or more owners want to hold title to a property and they want the “right of survivorship” feature that accompanies Joint Tenancy. These owners do not need to be husband and wife to hold title in Joint Tenancy.

Right of survivorship means that when one of the joint tenants dies, that interest passes automatically to the surviving joint tenants. The surviving joint tenants receive the deceased joint tenant’s interest without having to go through probate proceedings. All judgment liens, deeds of trust, or other liens which exist against the deceased joint tenant’s interest in the property are eliminated.

In order to create a joint tenancy, all that is normally required is that the deed states that the grantees are to hold title as joint tenants. In some states, specific Joint Tenancy Deeds are required. In many states, four elements are necessary to create the joint tenancy.

Those four requirements are that each tenant must acquire his interest at exactly the same time, that each tenant must acquire his ownership in the same document, that each tenant must hold the same type and amount of ownership interest, and that each tenant must have an equal, undivided, and identical right to possession of the property. All interests must be equal. One tenant may not own a quarter interest and the other tenant a half interest.

Joint tenants are allowed to transfer their individual interest to someone else, but the new owner will come in as a tenant in common with the remaining original joint tenants. Joint tenants may not leave their interest in the property to anyone else in their will. Their interest passes only to the surviving joint tenants.

Ending A Co-Ownership With A Quitclaim Deed

Ending a Co-Ownership With a Quitclaim Deed

Sandy Gadow

When two or more co-owners want to end their ownership rights in a piece of property, this type of transfer of title can take place by means of a Quitclaim deed. The co-owner will sign over his rights and title in the Quitclaim deed, and the deed should then be recorded in the County Recorder’s office. An exchange of money may or may not take place. A Quitclaim deed gives no warranties as to the condition of title at the time of the transfer.

Quitclaim deeds are often used between husband and wife or between relatives. Quitclaim deeds are also often used to cure technical defects in a title and to eliminate any potential claims against the property from persons with an uncertain or potential interest in the property. You can ask an escrow office or attorney to prepare the Quitclaim deed, or you may do it yourself.

What happens when one co-owner doesn’t agree to end a co-ownership? It may arise that one co-owner holding title with another owner under a tenancy in common, or a joint tenancy or a partnership may want to sell the property but the other co-owner does not agree. Does the owner wishing to sell have any remedies to this problem? All joint tenants have what is called the right of partition. This means that if one of the parties wants to end the tenancy, he or she can go to court and force it to be dissolved and the assets distributed to the various tenants. Partition is available for tenants in common, owners as joint tenants with the right of survivorship, conservatorship, life tenants, corporations, and property owned by trusts.

Because partition actions are often time-consuming and costly, this method of dissolving a co-ownership should be used only when the co-owners cannot come to an agreement. Partition actions often require the services of an attorney . A husband and wife cannot seek partition of property that is owned by them as tenants by the entirety. But once the parties are divorced, they can then seek an involuntary judicial partition of the property that they owned previously, unless specifically prohibited from using a partition action in their divorce or separation agreement.

When it is possible to divide the property and to establish a valuation of the property, local statutes often require three disinterested referees or commissioners be appointed by the court to determine value. If it is possible to divide the property but not possible to establish the value evenly between the co-owners, the difference is called owelty and the co-owner who gets the better half of the property must compensate the other co-owner for this privilege. If two or more partners in a partnership arrangement want to end a co-ownership, they must dissolve their partnership, as partition is not available to them in this case.

A mutual agreement between the joint tenants in a co-ownership is by far the simplest and most economical way to end an ownership among several co-owners. The right of partition exists, but really should be used as a last resort.

Can Unmarried Persons Hold Title As Joint Tenants?

This column may not be resold, reprinted, resyndicated or redistributed without the written permission from Escrow Publishing Company.