When working with clients on their estate plans, one of the most important items to consider and understand is how real estate is titled.
First, let’s discuss what “title” means. Title is a legal term that describes a bundle of rights in a piece of property. The rights in the bundle may be separated and held by different parties, like mineral rights or water rights, for example. Most likely, you know title as a term used to reference a formal document that shows evidence of ownership of a piece of property. When you sell the property, conveyance of the document is usually required in order to transfer ownership in the property to another person.
Typically, property owned by more than one person is titled in two different ways. Either as: 1) Joint Tenants with Right of Survivorship or 2) Tenants in Common.
Joint Tenants with Right of Survivorship
Most often, husbands and wives own property as joint tenants. The four unities necessary to create joint tenancy are:
- Time. Each owner must receive title at the same time.
- Title. Each owner must receive title on the same deed or document evidencing title.
- Interest. Each owner receives the same proportionate and equal share of ownership.
- Possession. Each owner has the identical right of possession.
Because of these unities, both parties have equal responsibilities, which means sharing in both the benefits and liabilities of the property.
The most notable characteristic of holding title as joint tenants is that when one joint tenant dies, the surviving joint tenant automatically receives title to the property as sole owner, without probate costs and delays and, therefore, provides for continuity of ownership. All that is usually required is a certified copy of the death certificate and for the survivor to record an affidavit of survivorship. The decedent’s Will has no effect on joint tenancy property.
If one of the joint tenants sells or conveys the interest created in a joint tenancy to another person, the joint tenancy is broken, and a tenancy in common is created.
Tenants in Common
Two or more realty co-owners, usually not married to each other, often take title as tenants in common. An advantage to holding title as tenants in common is that each owner can own a specific, unequal share of the property. For example, one might own a 50% interest, while two others might each own a 25% interest.
As opposed to joint tenancy, when one tenant in common dies, the decedent’s share passes according to the terms of the decedent’s Will. Or, if the decedent has no Will, then the decedent’s share will pass according to the intestate statutes of the decedent’s State. Either way, this can be a disadvantage because if the inheriting co-owner does not get along with the other tenants in common, then problems could result. Also, tenancy in common shares are subject to probate court costs.
To dissolve tenants in common, one or more co-tenants could buy out the other tenants in common. The whole property could be sold and the proceeds distributed among the owners. Or, a partition action could be filed. A partition action involves going to court and asking the court to sell the property under court order.
Given all of the above, be sure to have a good understanding of how property you own with others is titled and how that titling could impact your estate plan.