PEACE OF MIND
Real estate can be owned in several different ways. The form of ownership, or how your property is titled, can determine how much control you have over it, how vulnerable your property is to creditor claims and lawsuits, and what will happen to it at your death.
Individual ownership
One of the most common ways people own real estate is as a sole owner. As the sole owner, you have full control over the real estate. You can mortgage it or transfer it to anyone you choose while you are alive and have capacity. However, your real estate could potentially be exposed to creditors’ claims. At your death, your real estate will transfer to the beneficiaries named in your Will (or, if you have no Will, according to state law). With this type of ownership, probate court involvement will be required to transfer ownership to your heirs.
Tenants in common
Tenants in common is another form of ownership in which multiple individuals own real estate together. Unlike other forms of ownership, when several people own real estate as tenants in common, the ownership interests held by each individual do not have to be equal. The more co-owners there are, the greater the likelihood of creditor issues. Although creditors can collect from only the co-owner who owes them money, they may be able to force a sale of the real estate to satisfy their claim. Upon a co-owner’s passing, their ownership interest transfers to whomever the co-owner has specified in their Will (or by state law). Both options require the property to go through the probate process to transfer ownership to the co-owner’s heirs.
This is the most common ownership in Texas, even for married couples.
Joint tenancy
In most states, joint tenancy is the same thing as joint tenancy with right of survivorship. Two or more individuals each own an equal share in the real estate, and each joint tenant can transfer their interest to another person. Unlike tenancy in common, joint tenancy with right of survivorship interests automatically pass to the surviving co-owners upon the death of any joint tenant, avoiding the probate process. One downside of joint tenancy is the exposure to creditors. Because there are multiple co-owners, creditors of any one of them can generally go after that co-owner’s interest in the real estate to satisfy their debts or claims.
Rarely, is a deed created as a joint tenancy with a right of survivorship when you buy a new home – you must ask for this.
In a trust
Another option is to transfer it to, or have it purchased by, a revocable trust. As the trustmaker, you can establish rules for the use of the real estate, appoint a person to oversee its maintenance, and allow others including yourself) to enjoy it. One of the primary benefits of transferring ownership to a trust is that the property does not have to go through the probate process at your death; instead, the trust terms dictate how the property passes.
By an LLC
Another entity option is a “Limited Liability Company” (LLC). Instead of you owning the real estate, you own a part of the LLC (known as a membership interest), which is transferred at your death according to the terms of the LLC operating agreement. In the operating agreement, you can also include rules instructing how the real estate is to be used and managed and outline rules pertaining to the membership interests in the LLC. One major benefit of using an LLC is limited liability. If a lawsuit is filed based on a claim arising from the real estate or if a creditor seeks to satisfy a claim, the only assets available to satisfy any judgments or creditors are typically those owned by the LLC.
Protect your property
Regardless of how you think you own your real estate and how it will transfer at your death, it is important that you review your deed and accompanying estate plan. The title of your real estate can play a significant role in how your estate plan is set up and how your assets are ultimately distributed.
This article is provided as a service of the Law Office of Lasca A. Arnold, PLLC
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