How do you want to hold Title?
When purchasing a piece of real estate you should consider how you want to hold title. This decision has many implications on your rights in the property during your lifetime as well as what happens to the property after your death.
Here are some of the most popular, common ways to hold the title to real estate:
Sole Ownership– As the only person on the title to the real estate you are entitled to all of the privileges and subject to all of the responsibilities of owning the real property. Upon your death the property will pass to your heirs according to the terms of your Will or under the laws of intestacy of the state of your primary residence if you die without a Will.
Tenants in Common– This is one way for two or more people to own property together. Each owner is entitled to their respective undivided interest in the property. As a tenant in common owner of real estate your share in the real estate will go to your heirs either through your Will or under the laws of intestacy of the state of your residency. As a tenant in common owner you are responsible for your share of taxes and maintenance costs. A tenant in common owner may sell their share to another party without the consent of the other co-tenants. A creditor of one tenant may attach the interest in the property owned by that tenant. If tenants in common cannot agree on when or how to sell the property, Vermont law allows an owner to bring a lawsuit to partition (or sell) the property.
Joint Tenants with Rights of Survivorship– This type of ownership is similar to tenants in common in that the parties each own an undivided share in the entire piece of real estate. The difference is that on the death of a joint tenant their share automatically passes proportionately, without the need for probate, to the remaining joint tenants. A joint tenant may sell their share to a co-tenant or to a third party without the consent of the other co-tenants. When this occurs, the new buyer will hold title, not as a joint tenant, but as a tenant in common with the other co-tenants. Among themselves, the non-conveying tenants will remain joint tenants. Vermont law was changed in 2003 to allow tenants to hold unequal interests in real estate. Thus, one owner can own a 90% interest in the property and the other owner 10% interest in the property. However, if no specific share is set out in the deed, the law presumes that all of the owners own an equal share.
Tenants by the Entirety– This is a special type of ownership that is reserved for married couples or couples in a civil union. Tenants by the entirety are viewed as each being vested, under a legal fiction, with title to the whole. During their joint lifetimes, neither has a share that can be disposed of without the other joining. Tenants by the entirety ownership can provide an additional asset protection mechanism. Except in limited circumstances, a creditor of one tenant cannot attach the real estate owned by the tenants by the entirety for the debts of one of the parties to the marriage.
Those are the four primary ways to hold title to real estate. In certain circumstances we may recommend some of the less frequent types of ownership if they fit your particular circumstances. These types of ownership include:
Enhanced Life Estate Deeds– Some people sign “Enhanced Life Estate Deeds” which allow a property to pass to their heirs without the need for probate. The owners, during their lifetime, expressly reserves a life estate in the property together with other reserved rights including the right to sell, convey, mortgage, lease or gift the property. If you would like more information about Enhanced Life Estate deeds, please feel free to ask us. Such deeds can be used to convey property held in sole ownership as well as property owned in the types of tenancies described above.
Trustees of a Trust– There may be advantages to holding property in a Trust. We would be happy to discuss these reasons with you based on your circumstances. As but one example, this form of ownership may be useful if you will be purchasing a vacation home in Vermont and you want to avoid having to open a Vermont ancillary estate upon the death of the title holder(s). As with other forms of ownership, any decision to hold title as Trustee should be made with the assistance of your accounting advisor.
Corporations or Limited Liability Company– In certain circumstances it is appropriate for a business entity to own real estate but this type of ownership should be explored carefully with both your legal and accounting advisors because there can be negative tax consequences upon the sale of real estate owned by a business entity.
Family Limited Partnerships or Family Limited Liability Companies– In certain circumstances it may make sense to create a FLP or Family LLC to own real estate that may be held by successive generations of a family as it allows shares or membership interest to pass freely and be split into smaller shares or combined to meet the needs of successive generations.
Community Owned Property– Some states allow spouses hold property as community property. This type of ownership is not allowed in Vermont. If you live in a community property state you should talk with your home state attorney and Vermont attorney to make sure your interests and plans will be carried out.
Your individual circumstances and your goals and objectives will help guide you in selecting the proper type of ownership for you. Please feel free to contact use so that we can discuss your options and how your individual circumstances affect the type of ownership you will choose for your new real property.