Before shopping for homes, it’s important to consider how you will hold title on the property you purchase. Various title options have differing legal and tax implications that will affect you and future generations.
The five most common ways to hold title are sole ownership, tenants in common, joint tenancy with right of survivorship, community property (in applicable states such as California), and in a living trust. Below, we summarize each option:
- Sole ownership means that the home is in one person’s name, alone. He or she can bequeath the property to whoever he/she chooses and upon death. Before 2016, those who held their property as a sole owner had to go through probate. However on January 1st of 2016, the the Revocable Transfer on Death Deed (TOD Deed) came into law and is now a viable way for sole owners to bequest property and avoid the costs of setting up a living trust and probate.
- Tenants in common is the most common way for unmarried people to hold title. This choice allows those who hold title to hold different interests. For example, one person may own 40% of the home, and the other 60%. Alternatively, each tenant in common can hold equal interest in the entire property. Each tenant can will their interest in the property to whoever they choose and upon said tenant’s death, and their interest must go through probate. Tenants in common is a popular choice for those in second marriages, who wish to will their interest in the property to a child from an earlier marriage.
- Joint tenants with right of survivorship have equal interest in the property and must take title at the same time. Upon death of one tenant, the other tenants obtain the deceased tenant’s share without passing through probate. Either tenant can sell or give away their share of the property to whoever they choose, and upon such a conveyance, the new and existing owners will hold the property as tenants in common.
- Community property states such as California allow married couples to take title as community property. This title option gives both spouses fifty percent interest in the property, and the right to will his/her interest to the surviving spouse, or someone else. If community property is taken with a right of survivorship, meaning all remaining interest goes to the remaining spouse, then probate can be avoided.
- As this article points out, a living trust has the advantage of avoiding probate regardless of who you bequest the property to. In fact, you can set up a trust for nearly any asset you own, including bank accounts and vehicles. To take advantage of this title option, you must create a trust document and name someone to take over as a trustee after your death (successor trustee). Then, you must transfer ownership of your property to yourself as the trustee of the trust. Finally, the property will be controlled by the terms of the trust and carried out by the successor trustee. The property can then be transferred to your beneficiaries without going through probate.
All of these title options have pros and cons, and the best title choice for you depends on your unique situation. We have provided the following definitions of common Title options as an informational overview only. Readers should not rely on these as legal definitions. Schneider Estates, Inc. urges real property purchasers to consider their titling decision prior to closing, and to seek counsel should they be unfamiliar with the most suitable ownership choice for their particular situation.