Sole and Separate.
If the home is in the name of one party and the other is not on title, the unnamed party may lose a voice in the say and control of the property, and possess no right to share future profits. Married couples who want to own real estate separately in some states must record a quitclaim deed from one spouse to the other.
Sometimes only one party of the two or more purchasers can qualify for the mortgage. It that event, it is common to add the omitted individual(s) by recording a quitclaim deed after closing. However, always seek legal advice because the loan may contain an alienation clause.
Joint Tenants with Right of Survivorship.
Each person owns an equal share and if one party dies, title transfers to the survivor, regardless of what a will may specify.
Joint tenancy requires four unities:
- 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.
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. Joint tenants cannot stop another tenant from breaking the joint tenancy.
Tenancy in Common.
Tenants in common share possession equally but may own equal or unequal shares of the home. If one party dies, unless the surviving party is named in the will, the decedent's interest passes to heirs.
Tenants in common share one unity. The right of possession. All tenants in common have the right to occupy the property, and neither party can exclude the other.
In CA, for example, only married individuals may hold title as community property. Upon death, half ownership transfers to the decedent's heirs.
In community property states, if a married person acquires title sole and separate, it is still possible for the omitted spouse to acquire a community interest in the property, even though that name is not on title. This event is typically caused by co-mingling funds.
Community Property With Right of Survivorship.
If one person dies, title transfers to the survivor, but during ownership, both signatures are required to encumber or sell the home.
This type of title does not allow either party to pass respective ownership to an heir.
Some people establish trusts and transfer title to the trust to reduce taxes on the estate in the event of death. An estate planning attorney can set up a trust that is recognized by the I.R.S.
This type of trust should not be confused with an Offshore Foreign Trust, which unscrupulous financial planners peddle as a way to avoid paying taxes to the I.R.S.
Corporation or Partnership.
The legal entity owns the property, not the individual owners, and can result in tax consequences that may not be as favorable as some imagine. For example, corporations can be subject to double taxation (taxing the corporation and again taxing the shareholders). An S corporation avoids double taxation and is exempt from certain federal taxes. Always seek tax advice before forming a corporation or partnership.
Limited partnerships are managed by the general partner(s). The limited partners are not responsible for the debts of the partnership; typically the most a limited partner could lose is the limited partner's investment.
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.