5 Ways to Hold Title to Property
Posted on | October 10, 2010 | Comments Off
How you hold title to property can dictate who receives the property on your death, whether the property is subject to probate, and how it is taxed. This article examines the five ways title to property and the consequences of each.
Fee Simple
Fee simple is a term for full ownership. The owners can dispose of all or any part of the property as they please. The fair market value of the fee simple property is included in the owner’s estate for estate tax purposes and for probate purposes. The property does not automatically pass to the owner’s beneficiaries. It will pass according to their will (or trust, if the property is held in a trust) or, in the absence of a will, according to state intestacy laws.
Tenancy in Common
Tenancy in common is a form of joint ownership whereby two or more persons own an interest in the property. Each owner owns a percentage of the entire property. The percentages of ownership do not have to be equal. They do not own specific parts or sections of the property. Each joint tenant can partition or dispose of his portion of the property as he sees fit. The fair market value of the ownership interest is included in the owner’s estate for estate tax purposes and for probate purposes. The property does not automatically pass to the owner’s beneficiaries. It will pass according to their will (or trust, if the property is held in a trust) or, in the absence of a will, according to state intestacy laws.
Joint Tenancy
Joint tenancy is another form of joint ownership between two persons. Each owner owns an equal percentage of the entire property. The percentages are equal, which may not be the case with property held in tenancy in common. The owners can sever the joint tenancy to dispose of their portion of the property if the joint tenants cannot agree on how to dispose of the property. The ownership interest is included in the owner’s estate for estate tax purposes, but not for probate purposes. The property automatically pass to the surviving joint tenants. This is often referred to as the right of survivorship.
Tenancy by the Entirety
Tenancy by the entirety is a form of joint ownership between a husband and wife. The spouses cannot partition the property without each others consent. When the first spouse dies, the property passes to the regaining spouse. Thus, the property is not included in the first spouse’s estate for probate purposes. Fifty percent of the value of the property is included in the first spouse’s estate for estate tax purposes.
Community Property
Community property is similar to tenancy by the entirety. It is the default form for owning property in states that have adopted community property laws (such as California, Texas, Louisiana, New Mexico, Arizona, Washington, Idaho, and Wisconsin). Unlike tenancy by entirety, community property does not automatically pass to the surviving spouse. It is included in the decedent’s probate estate and passes according to their will (or trust, if the property is held in a trust) or, in the absence of a will, according to state intestacy laws.
