How Should I Take Ownership of the Property I am buying?
This important question is one many real property purchasers ask their real estate, escrow and title professionals every day. Unfortunately, though these professionals may identify the many methods of owning property, they may not recommend a specific for of ownership, as doing so would constitute practicing law.
Because real property has become increasingly more valuable, the question of how parties take ownership of their property has gained greater importance. The form of ownership taken-the vesting of title-will determine who may sign various documents involving the property and the future rights of the parties to the transaction. These rights involve such matter as real property taxes, income taxes, inheritance and gift taxes, transferability of title and exposure to creditor’s claims. Also, how title is vested can have significant probate implications in the event of death.
The Land Title Association (LTA) advised those purchasing real property to give careful consideration to the manner in which title will be held. Buyers may wish to consult legal counsel to determine the most advantageous for form of ownership for their particular situation, especially in cases of multiple owners of a single property.
The LTA has provided the following definitions of common vestings as an informational overview.
Consumers should not rely on these as legal definitions. The Association urges real property purchasers to carefully consider their titling decision prior to closing, and to seek counsel should they be unfamiliar with the most suitable ownership choice for their particular situation.
Sole ownership may be described as ownership by an individual or other entity capable of acquiring title.
Examples of common vestings in cases of sole ownership are:
A single man/woman – A man or woman who has not been legally married or who was previously married and is now legally divorced.
A married man/woman as his/her sole and separate property – A married man or woman who wishes to acquire title in his or her name alone.
The title company insuring title will require the spouse of the married man or woman acquiring title to specifically disclaim or relinquish his or her right, title and interest to the property. This establishes that it is the desire of both spouses that title to the property be granted to one spouse as that spouse’s sole and separate property.
Title to property owned by two or more persons may be vested in the following forms
Community Property – a form of vesting title to property owned by husband and wife during their marriage which they intend to own together. Community property is distinguished from separate property, which is property acquired before marriage, by separate gift or bequest, after legal separation, or which is agreed to be owned only by one spouse.
Real property conveyed to a married man or woman is presumed to be community property, unless otherwise stated. Since all such property is owned equally, husband and wife must sign all agreements and documents to transfer. Under community property, either spouse has the right to dispose of one half of the community property, including transfer by will.
Joint Tenancy – A form of vesting title to property owned by two or more persons, who may or may not be married, in equal interest, subject to the right to survivorship in the surviving joint tenant(s). Title must have been acquired at the same time, by the same conveyance, and the document must expressly declare the intention to create a joint tenancy estate. When a joint tenant dies, title to the property is automatically conveyed by operation of law to the surviving joint tenant(s). Therefore, joint tenancy property is not subject to disposition by will.
Tenancy in Common – a form of vesting title to property owned by any two or more individuals in undivided fractional interests. These fractional interests may be unequal in quantity or duration and may arise at different times. Each tenant in common owns a share of the property and is entitled to a comparable portion of the income from the property. Each tenant in common must also bear an equivilant share of the expenses. Each co-tenant may sell, lease or will to his/her heir that share of the property belonging to him/her.
A Corporation – A corporation is a legal entity, created under state law, consisting of one or more shareholders but regarded under law as having an existence and personality separate of such shareholders.
A Partnership – A partnership is an association of two or more persons who can carry on business for profit as co-owners, as governed by the Uniform Partnership Act. A partnership may hold title to real property in the name of the partnership
As Trustees of a Trust – a trust is an arrangement whereby legal title to property is transferred by the grantor toa person clled a trustee, to be held and managed by that person for the benefit of the people specified in the trust agreement, called the beneficiaries.
Limited Liability companies (L.L.C) – This form of ownership is a legal entity and is similar to both the corporation and the partnership. The operating agreement will determine how the L.L.C. functions and is taxed. Like the corporation its existence is separate from its owners.
In cases of corporate, partnership, L.L.C. or trust ownership – required documents may include corporate articles and bylaws, partnership agreements, L.L.C. operating agreement and trust agreements and/or certificates.
How title is vested has important legal consequences. You may wish to consult an attorney to determine the most advantageous form of ownership for your particular situation.
Estate planners often recommend “Living Trusts” as a viable option when contemplating the manner in which to hold title to real property. When a property is held in a Living Trust, title companies have particular requirements to facilitate the transaction. While not comprehensive, the following are answers to commonly asked questions. If you have questions that are not answered below, your title company representative may be able to assist you, however you may wish to seek legal counsel.
Who are the parties to a Trust? A typical trust is the family in which the husband and wife are the trustees and their children are the beneficiaries. Those who establish the trust transfer their property into the trust and are known as the trustors or settlers. The settlors usually appoint themselves as trustees and they are the primary beneficiaries during their lifetime. After their passing, their children and grandchildren usually become the primary beneficiaries if the trust is to survive, or the beneficiaries receive distributions directly from the trust if it is to close out.
What is a Living Trust? Sometimes called an Inter-Vivos Trust, the Living Trust is created during the lifetime of the settlers as opposed to being created by their wills after death) and usually terminates after they die and the body of the trust is distributed to their beneficiaries.
Can a Trust hold title to Real Property? No; the trustee hold the property on behalf of the trust.
Is a Trust the best way to hold my property? Only your attorney or accountant can answer the question; some common reasons for holding property in a Trust are to minimize or postpone death taxes, to avoid a time consuming probate and to shield property from attack by certain unsecured creditors.
What taxes can I avoid by putting my property in a trust? Married persons can usually exempt a significant part of their assets from taxation and may postpone taxes after the first of them to die passes. You should check with your attorney or accountant before taking any action
Can I homestead property held in a Trust? Yes, if the property otherwise qualifies
Can a Trustee borrow money against the property? A trustee can take any action permitted by the terms of the trust, and the typical Trust Agreement does give the trustee the authority to borrow and encumber real property. However, not all lenders will lend on a property held in trust, so check with your lender first.
Can someone else hold title for me “in trust?” Some people do not wish their names to show as titleholders make private arrangements with a third party Trustee; however such an arrangement may be illegal, and is always inadvisable because the trustee of record is the only one who is empowered to convey or borrow against the property and a title insurer cannot protect you from a trustee who is not acting in accordance with your wishes despite the existence of a private agreement you have with the trustee.