There are many ways to hold a real estate property. Some of the most popular types of property ownership include joint tenancy, tenancy in common, tenants by the entirety, sole ownership and community property. These are commonly used by every real estate owner who is not holding title in conjunction with a company, organization or trust arrangement.
When it comes to being a property owner, it is crucial to understand the manner in which the title will be held. This is due to the fact that having a title of ownership protects the proprietor and the properties from other claimants or any future problems.
To help you figure out what type of ownership is right for you, here are nine efficient methods of holding a real estate title:
1. Joint Tenancy
2. Tenancy in Common
3. Tenants by Entirety
4. Sole Ownership
5. Community Property
6. Corporation Ownership
7. Partnership Owners
8. Trust Ownership
9. Living Trust
You can use this guide to identify what you need before signing or closing a deal. We’ll examine each of these methods in detail in the following section so you can get a clearer picture of what each method offers.
1. Joint Tenancy
In joint tenancy ownership, there are two or more people who hold the real estate titles. Generally, they own and share the property equally. Due to their legal ownership, both parties have the same rights and can use the asset as they wish. Moreover, they may also be able to receive the income generated by the property, as well as share financial responsibilities, such as mortgage and taxes.
While it is the most common type of real estate ownership, the joint tenancy has its own pros and cons. For instance, one of its advantages is that joint owners don’t necessarily have to be spouses or family members, but can be anyone who shares interests. Basically, you can buy a property with a friend, co-worker or whoever you want to partner with.
Aside from this, since they can use the shared property to its full extent, they can offer it for sale without a court petition so long as they both agree to the terms, such as dividing the property. Meanwhile, when a tenant dies, their rights of ownership pass to the surviving owner. This is referred to as Joint Tenant With Right of Survivorship (JTWROS).
Legally, the JTWROS is a structure that allows the surviving owner to inherit the value of the shared property from the deceased owner. In this manner, the ownership can’t be transferred to an heir of the deceased and the probate process is avoided. To establish the Joint Tenants with Right of Survivorship, the co-owners must acquire the asset at the same time, have an equal share and hold the same title of the asset. They must also have equal rights to the property.
In spite of these advantages, joint tenancy comes with a few drawbacks. Having a shared property means that certain responsibilities are equally shared by both owners.
For instance, when the asset is intended for revenue-generating purposes, the financing and everything in between must be shared among the owners. The same applies to any other decision regarding the realty, including whether it should be sold or transferred. Both owners must approve any further actions. Furthermore, if one of the owners has a debt, the creditor can seek a court order that divides and sells the property to collect on its judgment.
2. Tenancy in Common
When the real property is held in the form of tenancy in common, it can be owned jointly with one or more individuals. However, they can divide their share into various percentages, which results in different incomes, rights, and usages. As long as it is agreed to, the owners can still control and enjoy all other aspects of the property, since the shared percentage represents only the financial ownership.
One of the perks of this type of real estate holding is that it can be modified or created anytime. In fact, if one owner decides to sell his share, he is free to do so. Apart from this, if a debt is owed by one owner, the creditor cannot claim legal rights to the entire realty, unlike in joint tenancy. Creditors are only allowed to request legal rights to the portions of property owned by those who have debt. This does not affect individuals who own an interest in the property.
As a downside, it doesn’t have the right to survivorship. Tenancy in common provides its members with the ability to transfer ownership through traditional documents. Basically, when one owner dies, the property must go through the probate process rather than going directly to the other owners. In addition, when one owner quits paying their share of financial obligations, like the mortgage, other owners have to shoulder the responsibility.
3. Tenants by Entirety
Tenants by the entirety, otherwise known as TBE, is a type of real estate ownership used by legally married couples. Like in joint tenancy, they each own equal shares of the property, the rights, and the use, as well as any income generated from it. For legal purposes, tenants by entirety view a married couple as one entity.
They are also entitled to a right of survivorship, which allows the living spouse to take ownership of the property after the other one has died. The advantage of this process is that it eliminates the hassles associated with a will, probate, or legal proceedings. If they divorce, the ownership of the property automatically changes from TBE to TIC, tenancy in common.
Apart from this, tenants in their entirety help protect the shares of one spouse from the other who has debt. In situations where the debtor has been able to secure a legal judgment to sell the property for payment of the debt, the other spouse has to be reimbursed for their ownership interest in the property.
Unfortunately, some states do not recognize this type of ownership, which could be a problem for those looking to buy property in certain locations.
4. Sole Ownership
Sole ownership, also referred to as sole proprietorship, is a type of real estate ownership in which a single person holds the entire title to a property. Since there are no other people involved, it is perhaps the simplest form of holding a realty. In some sense, it simplifies any documents, legal processes, or transactions.
Having sole possession of the property, he can easily sell it without waiting, asking or needing anyone’s permission. In fact, the owner can do whatever he wants with the property, and the income generated by it, if any, belongs entirely to him.
Although this kind of property ownership has its benefits, the major drawback is the process it has to go through when the owner passes away. For instance, a probate must be completed before the title can be transferred, which can be expensive and could take a long time.
5. Community Property
Since married couples are involved in this type of ownership, it is quite similar to tenants in the entirety. Both of them have equal shares, rights, and privileges.
The right to survivorship may be entailed by community property, depending on where you live. When one partner dies, the other may take their share of the estate without going through probate or legal processes.
6. Corporation Ownership
Any property that is owned by corporations is held as corporation ownership, hence the name. In the legal system, the corporation is considered the legal entity alone, separated from its shareholders. One of the advantages of this is that anyone with an interest in the property can buy shares of stocks from the company. This actually saves anyone from having to process a transfer since simply purchasing stocks is sufficient as long as it’s agreed upon and recorded.
Like other types of property ownership, this also has its disadvantages. For example, taxes on the profit from transferring shares and income from the real estate under corporate ownership can be higher. Additionally, if someone has been injured on the premises, the corporation can be sued and in some cases, assets can be seized and sold by a creditor.
7. Partnership Owners
A property can also be held through a partnership. Partnership owners can either be two or more people who simply want to own a property together or start a business from it to generate income. It is the partnership formed between them that holds title to the property. As a result, a partner cannot transfer a share of the property to someone outside the partnership.
8. Trust Ownership
In Intrust ownership, the property is held in a fiduciary relationship between the real estate owner, commonly referred to as the trustor, and the designated trustee. The trustee may be a person or organization who can manage and take care of the property on behalf of its beneficiary. A beneficiary may be a minor or an incapacitated individual. Meanwhile, the trustor must arrange this type of real estate ownership while still alive.
Among the benefits of trust, ownership is that it is tax-efficient and avoids probate. When an owner passes away, his shares and ownership of the property will be seamlessly passed on to his beneficiary. However, when the beneficiary is a minor or deemed incapable of handling the property, the trustee can handle the real estate until the beneficiary is deemed capable of managing it.
However, this type of ownership can be complicated, irrevocable and expensive. There can be a lot of hassle with the structure, especially when issues arise like loans. In addition to this, the terms cannot be changed or terminated without the beneficiary’s permission. Moreover, the trustee’s power is limited.
9. Living Trust
The living trust, also known as an inter-vivos trust and revocable trust, enables the property owner to establish an agreement of transferring the ownership of his property upon his death. In the same way as trust ownership, the arrangement must be made while the owner is still alive.
The living owner holds full control and rights over the property. This includes any income that may come from it. Suppose he is incapacitated in handling it, his beneficiary can step in to look after it without the need for court permission.
A living trust agreement has a few advantages. For example, probate can be avoided since the assets can be easily transferred to the beneficiary, who has already been selected by the owner. Because of this, you can also retain privacy for your family as it does not have to go through an open process.
Aside from this, you can also designate how your property is distributed. In essence, this is similar to creating a will. You can control how many shares go to each of your beneficiaries. In the case of a minor beneficiary, you can also establish a trust within the living trust until he is mature enough to manage the inheritance.
A major disadvantage of this type of ownership is its cost. There is quite a bit of paperwork involved in transferring titles and finalizing a living trust agreement. Undoubtedly, it can be quite expensive, which is why it is advisable to consult a professional when making such difficult arrangements.
In most cases, this type of ownership has always been considered a viable option, especially in families, in which the husband and wife are trustees and their children are beneficiaries.
What is the Definition of Holding of Property?
The holding of a property refers to how the ownership of the property is recorded in its title. You can hold real estate on your own, partner with your spouse or even collaborate with a corporation. It is essential to be aware of the way in which you hold a property, as this determines your responsibilities, shares, and rights to it. This is particularly crucial when it comes to property investments.
On another note, there are other real estates investing acronyms and terms that you should have knowledge of. As an example, it’s important to know what a title is.
A title is a legal term that denotes ownership or the right to use the property, whether in its entirety or a certain percentage. Each title has its own set of regulations. The term does not just apply to real estate; it can also describe a personal belonging, such as a vehicle, artwork or appliance.
How many Names can be on a House Title?
House titles, also referred to as property titles can be held by a maximum of six individuals. Depending upon the closing attorney, the documents can be signed from different locations at different times.
What is the difference between a Title and a Deed?
Titles and deeds are often confused and used interchangeably. This makes sense because they’re similar in some ways. For instance, they are both legal documents associated with real estate. Basically, you’ll have a title and a deed when you own a property.
On the other hand, the main difference between them is their purpose. Essentially, a deed is a physical legal document that finalizes the ownership of a property. It includes the details of the real estate and its legal owner is registered.
Additionally, it records the transfer of title from one party to another, as well as the names of the people involved in the transaction. The document must be signed by all parties and filed on the official record. In order to be fully binding, it must usually be written at the courthouse or assessor’s office.
Meanwhile, a title refers to a concept that conveys ownership and rights of property to its owner. It is a legal way to declare ownership. There can be titles held by individuals, a couple, a group, or a corporation.
When it comes to Deed vs Title, know that a deed is a more important document when it comes to securing your ownership rights, as it serves as proof that you are the property owner.
What is the Highest Form of Ownership?
Fee simple ownership is the highest form of ownership. This is because fee simple ownership gives the owner more freedom to use the property as they please so long as it does not go outside of local guidelines, zoning limits, and laws. They have total control over the property and can easily sell it or pass it on to someone else if that is what they choose to do.
It is a completely different form of ownership from leasehold. During leasehold ownership, the property owner enters into an agreement with an individual or group that will occupy the property in some way. Once the contract ends, the original owner will gain back all the rights of use.
You can see why fee simple ownership is the highest form of property ownership. It simplifies handling the ownership process, easy to manage, and eliminates the hassles associated with other kinds of ownership, especially during any transactions.