Holding Title to Real Property
Much of my practice is working with clients to create plans that will ensure their estates are distributed according to their desires in the most effective way possible. This often leads to a discussion about how real property is titled and how that effects the overall plan.
Joint Tenancy with Rights of Survivorship (JTROS)
One of the most basic ways of holding title to real property, JTROS results in all “tenants” owning the same interest in the property (two owners = 50/50; three owners = thirds, etc.). When one “tenant” dies, their interest in the property disappears by “operation of law” and the remaining “tenants” own the property in equal shares. There is no testamentary disposition of one’s interest in the property because at the moment of death that interest vanishes. It is my long-held position that neither Trusts nor couples (as a unit) can be “joint tenants” (although I have seen deeds attempting this). JTROS do not avoid probates – they simply delay probate until the last “tenant’s” death, at which time the entire property is subject to that decedent’s estate plan, or lack thereof.
Tenancy in Common (TinC)
By contrast, TinC is not limited to individual owners, with each “tenant’s” interest in the property different (two owners may = 60/40). Each “tenant” may transfer their ownership interest during life or at death. Trusts and couples (as a unit) may act as a single “tenant”. TinC will not avoid probate (unless that interest is held in a Trust) because a passable interest exists at death.
Tenancy by the Entirety (TbyE) and Community Property (CP)
These both work similarly to JTROS, but are reserved for married couples. TbyE is recognized by 26 states, including Oregon; CP is recognized by 10 states, including California and Washington.
Asset protection advantages may exist by treating the TbyE as separate entity; however, a tax specialist should be consulted to fully understand how this works. In community property states, assets are considered part of the marital unit and when one spouse dies, the remaining spouse automatically owns the entire property. No asset protection exists; however, there may be tax benefits to the ultimate beneficiaries.
Both TbyE and JTROS only delay probate until the death of the surviving spouse and may not ultimately be an effective estate planning tool.
Trust Owned Property
When a Trust owns property, disposition of that property is controlled by the Trust and probate is avoided. Ownership by a Trust should not affect any benefits afforded to married couples, assuming the Trust includes the appropriate language.
Know how you hold title and what that means. Understanding the basics of real property titles and working with an attorney well-versed in the options can go far in ensuring one’s property is protected best for each specific scenario.
NOTE: For current tax or legal advice, consult with an accountant or attorney; the information contained in this article is not tax or legal advice and is not a substitute for either.