How You Title Your Real Estate Matters

Real estate can be owned in several different ways, and the way your property is titled can have significant legal and financial consequences. Your ownership structure affects how much control you have over the property during your lifetime, how vulnerable it may be to creditors or lawsuits, and how the property will transfer when you pass away.

Understanding these ownership options is an important part of building an effective estate plan.

Individual Ownership of Real Estate

One of the most common ways to own real estate is through individual (sole) ownership. As the sole owner, you have complete control over the property. You may sell it, mortgage it, or transfer it to anyone you choose while you are alive and have the legal capacity to do so.

However, individual ownership can also expose the property to your personal creditors. In addition, if the property is owned solely in your name, it will typically pass to your heirs through your estate plan—or according to state law if you have no plan in place.

If the property transfers through a will or through state intestacy laws, probate court involvement will usually be required. Probate can be time-consuming, public, and costly for your loved ones.

Tenants in Common

Another form of ownership is tenancy in common, where two or more people own a property together. Unlike other shared ownership structures, each owner’s interest does not need to be equal. For example, one owner might hold a 25 percent share while another owns 75 percent.

Each co-owner generally has the right to transfer or mortgage their share independently. However, this arrangement can introduce additional risk. If one co-owner faces creditor issues, creditors may attempt to claim that person’s ownership interest and could potentially force the sale of the property to satisfy the debt.

When a co-owner dies, their share passes according to their estate plan—or according to state law if they have no plan. In most cases, this means the property must go through probate to transfer the ownership interest.

Joint Tenancy with Right of Survivorship

In many states, joint tenancy with right of survivorship allows two or more people to own property together in equal shares. One of the key features of this ownership structure is that when one joint owner dies, their interest automatically transfers to the surviving co-owners.

Because the transfer occurs automatically, the property avoids probate.

However, joint tenancy has potential drawbacks. Because there are multiple owners, creditors of any one owner may pursue that person’s share of the property to satisfy a debt. In some cases, creditors may even force a sale of the property.

In addition, if one joint tenant transfers their ownership interest to another person, the joint tenancy arrangement may be broken and converted into a tenancy in common.

Tenancy by the Entirety for Married Couples

In some states, married couples can own property as tenants by the entirety. This ownership structure treats both spouses as a single legal unit.

As a result, one spouse generally cannot sell or mortgage the property without the consent of the other. Tenancy by the entirety may also provide protection from the creditors of only one spouse.

Another benefit is that when one spouse dies, ownership automatically transfers to the surviving spouse. This transfer happens outside of probate.

Owning Real Estate Through a Trust

Another option is to transfer real estate into a trust.

If your property is placed in a revocable living trust, you can usually continue to manage and use the property during your lifetime just as you did before. One of the main advantages of this structure is that the property can pass to your beneficiaries without going through probate after your death. 

If the property is held in an irrevocable trust, the trust becomes the legal owner, and the rules governing the property are determined by the terms of the trust. This structure may provide additional planning or asset protection benefits but can also limit your control.

It is also important to note that transferring property with a mortgage into a trust may sometimes require lender approval.

Owning Real Estate Through a Limited Liability Company (LLC)

Real estate can also be owned by a limited liability company (LLC). Instead of owning the property directly, you would own a membership interest in the LLC that holds the property.

This approach is often used for rental properties or investment real estate because it can provide limited liability protection. If a lawsuit arises from activities related to the property, claims are typically limited to the assets owned by the LLC rather than your personal assets.

The LLC’s operating agreement can also establish rules for how the property is managed, used, and transferred. At your death, your membership interest in the LLC can pass according to your estate plan or the terms of the operating agreement.

The effectiveness of these protections can vary depending on state law and your specific circumstances, so professional guidance is essential.

Why Proper Title Planning Is Essential

How your real estate is titled plays a critical role in how your estate plan functions. If property ownership is not structured properly, it can undermine even the most carefully drafted estate planning documents.

Reviewing your property titles and coordinating them with your estate plan helps ensure that your assets transfer efficiently and according to your wishes.

Contact us today to review how your real estate is titled and ensure that your estate plan properly protects your property and your family’s future.