How Should You Own Your Home?

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You can legally own real estate in one of many different ways. The way you own property is important because it affects what you can do with it while you own it, how you can dispose of it during life, who receives it at your death, and how taxes are apportioned. 

 
What are the most common forms of property ownership?

 
Sole ownership

Sole ownership (or outright ownership) occurs whenever you fully own the home by yourself. You alone enjoy full use of the property. You alone are responsible for any of the costs associated with the property. In general, you are the only one who can decide how to dispose of the home.

 
Joint tenancy

A joint tenancy (also called joint tenancy with rights of survivorship, or JTWROS) is one of the ways two or more people can own something together. If you are the co-owner of a home owned as a joint tenancy (a joint tenant), that home passes automatically at your death to the remaining joint tenants without the expense and delay of probate. A joint tenant may sell his or her interest in the home. If this happens, the remaining cotenants’ rights of survivorship in that interest end. The joint tenancy continues among the remaining cotenants, but the purchaser becomes a tenant in common.

Caution: Joint tenancy can exist without rights of survivorship in some states. If this is the case in your state, be sure to be very clear about what type of joint ownership (with or without rights of survivorship) is being created.

 
Tenancy in common

A tenancy in common is an ownership interest shared by two or more persons in real property. Each owner (called a tenant in common) has a right to use and possess the entire property even though he or she may actually own an unequal share. Shares are proportionate to contributions or determined by agreement. At death, an owner’s share passes to his or her beneficiaries and generally must pass through probate. Tenants in common do not have survivorship rights. This lack of survivorship rights distinguishes a tenancy in common from other joint ownership arrangements. None of the tenants have exclusive rights to any part of the property. Tenants in common are free to transfer their portion of the property without first obtaining the consent of the other tenants.

 
Tenancy by the entirety

A tenancy by the entirety can only exist between spouses. If you are the co-owner of a home owned as a tenancy by the entirety (a tenant by the entirety), that property passes automatically at your death to your spouse without the expense and delay of probate. Neither spouse can encumber or dispose of the property without the consent of the other. This form of ownership can be used as an asset protection tool. Creditors of one spouse generally cannot reach property that is owned as a tenancy by the entirety until the nondebtor spouse dies or the tenancy by the entirety is terminated by divorce or transfer to another form of ownership.

 
Qualified personal residence trust (QPRT)

A qualified personal residence trust (QPRT; pronounced “Q-Pert”) is an irrevocable trust that is often used as an estate-tax-saving device. The home is owned by the trust, but you retain the right to use the property for a term of years. The beneficiaries of the trust are often your children or grandchildren. At the end of the term of years you select, your beneficiaries will inherit the home. Putting the title of the home in the trust’s name is considered a taxable gift. However, you may discount the value of the gift depending on the length of the term of years you select and the applicable government interest rates. If you outlive the term of years, the value of the residence will not be included in your gross estate. However, if you die before the term ends, the full value of the residence at the time of your death is included in your estate.

A note on community property

To date, community property laws have been enacted in Puerto Rico and 10 states: Alaska (which has an optional system), Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Community property laws establish a set pattern of property ownership for married couples.

Although the laws vary among these states, some general characteristics are shared by all. In general, community property states deem that each spouse owns a one-half interest in the home if it was purchased during marriage. At the death of one spouse, the surviving spouse is entitled to one-half.

 
Provided by Ed Wettig, CFP, Wettig Capital Management which offers investment management, financial planning and retirement income strategies. Securities and investment advisory services offered through Royal Alliance Associates, Inc. Member FINRA/SIPC and a Registered Investment Advisor. Wettig Capital Management is independent of Royal Alliance Associates, Inc. and not registered as a broker/dealer or investment advisor.


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