- Estate Planning
- Your Estate Plan Should Include Real Estate
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Many people are fortunate to become property owners during their lifetime. Some may even own more than one piece of real estate. Like your other assets, you probably know who you’d like to inherit the house, condominium, and/or commercial property you worked hard to acquire over the years. Creating an estate plan can help make sure that your property is inherited by the beneficiaries you want.
Sometimes property will be purchased and titled in a way that designates who will inherit it upon the owner’s passing, regardless of what is written in their will. For this reason, it’s vital to understand the different possibilities for titling real estate and how they can affect your estate plan. Failing to consider real estate in estate planning can result in the property winding up in the hands of someone or some entity (like the state in which you live) rather than your intended heirs. Fortunately, there are ways to ensure that this doesn’t happen to you.
There are four main ways for estate planning to cover real estate property. They are:
- Joint tenancy with right of survivorship
- Tenancy by the Entirety
- Tenancy in common
- Community property
Let’s examine each to see how each method of holding property can affect one’s estate plan.
What Is Joint Tenancy with Right of Survivorship?
Joint tenancy with the right of survivorship refers to a legal way of owning real estate and other property that involves two or more parties. The parties to the relationship are referred to as tenants or co-owners and have equal shares of the property owned. In this scenario, when one party dies, the other living party inherits the deceased party’s share of the property.
For instance, if Jackson and Melissa buy a house together and register it in joint tenancy with the right of survivorship. When Melissa dies, the house will automatically be inherited and transferred to Jackson. Jackson does not need to do anything in order for this to happen. In this case, the benefit of registering the land as joint owners becomes apparent, as Jackson will immediately enjoy full ownership of the property.
In order for a property to fall under the joint tenancy agreement with the right of survivorship, some requirements must be met.
- The property registered under the joint tenancy with the right of survivorship must be acquired by the owners at the same time. For instance, the house must have been bought together from the seller.
- The co-owners must have a right to possess the whole property at all times.
- The individual contribution of the co-owners during purchase must not affect the equal ownership of the property.
Advantages of Joint Tenancy with the Right of Survivorship
The primary advantage of using joint tenancy when titling a property is to gain the right of survivorship. Two parties will typically enter into this type of ownership arrangement because of a close relationship between them. Rather than leaving their portion of the property to each other in a will, and having to go through the sometimes lengthy probate process upon one of the owner’s death, the property will instead pass automatically to the surviving owner. This saves the surviving owner time and money.
Disadvantages of Joint Tenancy with the Right of Survivorship
Joint tenancy has disadvantages that must be considered by those entering into this sort of agreement. The ownership of property may turn messy in the event the parties fail to agree on some of the issues between them, and may – in some cases – entangle other family members.
We’ve seen this happen during divorce proceedings, for example. In the event of divorce, the right of survivorship exists only until the court hands down a final divorce decree. Then, the joint tenancy reverts to tenancy in common, automatically overriding the right to survivorship. In such cases, the parties may mutually consent to divide the property into shares they deem fair, and sell or rent out their interest in the property.
Most people own property with the hope of improving their lives, as well as those of their dependents, making it essential to ensure that the property transfers to the heirs. However, in the case of joint tenancy with the right of survivorship, the property owner cannot give their share of the property to someone besides the joint tenant. In order to avoid all these challenges, consult with an experienced attorney when mapping out an estate plan.
What Is Tenancy by the Entirety?
Tenancy by the Entirety is a special type of property ownership reserved for married couples. It can be created by a married couple if they are married at the time the property is purchased and the title is received in both of their names.
Advantages of Tenancy by the Entirely
Similar to the joint tenancy arrangement discussed above, tenancy by the entirety creates a right of survivorship so that the property automatically passes to the surviving spouse upon the other spouse’s death. Another major benefit to this type of property ownership is that a creditor cannot enforce a lien on the property if only one spouse owns the debt.
Disadvantages of Tenancy by the Entirely
Each spouse in a tenancy by the entirety arrangement must agree to any decisions made regarding the property. So, for example, in this arrangement one spouse would not be able to sell off their portion of the property without the approval of the other spouse. As with joint tenancy, property owners in this arrangement should speak with an estate planning attorney if they desire to distribute their property to someone besides their spouse
What Is Tenancy in Common?
Tenancy in common refers to a legal arrangement whereby two or more people own property together but each has an independent share. After the death of one of the owners, their share passes to any beneficiary they chose.
One of the most common examples of property owned under tenancy in common includes assets owned by two people who are in a relationship, but not legally married. In such cases, each individual possesses a share of the property. In the event the relationship ends, each party is entitled to his/her share of the property and may even transfer it to another person if they wish to do so.
Advantages of Tenancy in Common
Tenancy in common has some essential benefits to those involved. First, there can be different proportions of ownership. In a tenancy in common, the owners are able to have different stakes in the property. For instance, one person can own 50% of the property whereas two others can each own 25%. From an estate planning perspective, a property owner in a tenancy in common can give the property to as many heirs as they want to, and in any percentages they would like. Recall that in a joint tenancy with survivorship, this is not possible, as the property would just go to the surviving spouse.
Under a tenancy in common, the number of tenants can change. The law allows tenants in a tenancy in common arrangement to increase the number of tenants in the agreement depending on the size of investment they have. For instance, if a property, such as a block of apartments, is passed to several children or beneficiaries of the owner, the new owners may collect the income and share it amongst themselves or agree to sell the property and divide the proceeds altogether.
Disadvantages of Tenancy in Common
Despite the advantages explained above, tenancy in common has some disadvantages especially related to probate. Consider the following:
There are no automatic survivorship rights. This means that when someone dies with property owned as tenancy in common, their share of the property will be inherited based upon their chosen distributions, as outlined in their will. If the tenant dies without a will, the potential beneficiaries will need to go through the intestacy process to determine who will receive what portion of the estate. As such, it’s vital for anyone owning property through a tenancy in common arrangement to speak with an estate planning attorney and create a plan for how they would want their property to be distributed upon their death.
What Is Community Property?
Community property, also known as marital property, is a legal concept in some states that deals with assets belonging to married couples. In this case, all assets owned or acquired during the marriage are considered community property belonging to the marriage partners equally, regardless of who contributed to acquiring the assets.
However, in some other states, the court may divide community property based on what the judge considers equitable shares for each party. Exceptions are gifts and assets inherited by either spouse during the marriage. These are not considered community property. Further, when a person moves from a community property state to a non-community property state, each spouse is allowed to retain one-half of the property purchased during the marriage while living in the community property state.
Advantages of Community Property
Community property has disadvantages and advantages depending on how different people view it. Due to the fact that community property is viewed as joint-owned property between married couples, there is no need for a will to transfer the property if one spouse dies. In the case of divorce, the court divides the property equally or depending on what the court views as just and equitable.
Disadvantages of Community Property
The disadvantages of community property is that one party may benefit more than they deserve. One spouse may have contributed more towards ownership than the other, and sometimes that difference can be significant. In such a case, the spouse who made more of a contribution may feel the division of property is unfair, especially in states that have strict rules requiring that property be divided equally. Unfortunately, some people do not realize that their property is bound by community property rules until it’s too late.
If you have ever lived in a community property state it’s best to speak with an experienced attorney prior to creating your estate plan to avoid any issues with how your property will be distributed upon your death.
You Can Avoid These Estate Planning Situations
When it comes to owning real estate, it’s important to understand what each arrangement means for you and your beneficiaries. The different property ownership methods discussed in this article can be complex, with significant implications if not handled properly. At Rosenblum Law, our experienced attorneys will work with you to create an estate plan that reflects your wishes for the dispersal of your real estate once you are gone. We use innovative technology and a streamlined process to make estate planning easy for our clients. We also offer transparent flat-fee pricing on most of our estate plans and the initial consultation is always free. Call us today at 888-265-9021 to get started on your estate plan.
How to Cite Rosenblum Law’s Article
Your Estate Plan Should Include Real Estate (Jul 19, 2022). Your Estate Plan Should Include Real Estate. Rosenblum Law Firm, https://rosenblumlaw.com/estate-planning/your-estate-plan-should-include-real-estate/
Your Estate Plan Should Include Real Estate "Your Estate Plan Should Include Real Estate". Rosenblum Law Firm, Jul 19, 2022. https://rosenblumlaw.com/estate-planning/your-estate-plan-should-include-real-estate/