When purchasing a home, you’ll have lots of decisions to make: where to look for a home, how to finance it, what home to make an offer on, how much to offer, which title/escrow company to use, what date you want to close the transaction.
Then when your offer is accepted, you’ll need to choose inspectors and determine which, if any, repairs you’ll ask the seller to make.
For most of these decisions, your Realtor will be beside you as a trusted advisor, helping you select the wisest course of action for you and your family.
Some issues, though, are outside the purview of real estate agents. Some issues, such as how to take ownership – also known as holding title or vesting of title – to the property once it is yours, are legal matters best left to attorneys with input from your tax advisor.
In fact, this is one decision about which it would be improper for either agents or escrow officers to advise you.
Your escrow officer likely will give you a handout explaining the various ways of holding title, however, to help you decide which is best for your situation.
How you hold title is no small matter. Your decision will determine who may sign certain documents and has repercussions for real property and income taxes, inheritance and gift taxes, transferability of title, exposure to creditors’ claims, and what happens to the property when one party dies.
The following is a list of common ways to hold title to real estate.
Sole Ownership (ownership by one person or entity):
• A Single Man/Woman – If you are not legally married or in a domestic partnership, title would read, for example, Harriet Homeowner, a single woman.
• A Married Man/Woman or a Domestic Partner – If you are legally married or in a legal domestic partnership but are acquiring title in your name alone, the title company will require your spouse or partner to disclaim or relinquish rights, title and interest to the property. For example, Bruce Buyer, a married man, as his sole and separate property.
Co-Ownership (ownership by two or more persons):
• Community Property – In California and some other states, real estate acquired during the marriage by a married person is presumed to be community property, and thus owned equally, unless otherwise stated. Title is held by “the community” of husband and wife. Each party has equal management and control of the entire property. Either spouse’s creditors can lay claim to the property. When one person dies, the surviving spouse is entitled to half ownership of the property; the other half goes to the decedent’s heirs. This form of ownership is allowed only for legally married couples. For example, Taylor and Riley Smith, spouses, as community property.
• Community Property with Right of Survivorship – Like Community Property, but this method of holding title means the surviving spouse has sole ownership of the property.
• Joint Tenancy – Similar to Community Property with Right of Survivorship, but for two or more people who may or may not be married. For example, Bruce and Bill Buyer, a married couple, and Harriet Homeowner, a single woman, as joint tenants.
• Tenancy in Common – If you want to own property with one or more other people, either equally or not, perhaps adding and dropping co-owners at various times, you may want to hold title as Tenants in Common. In this situation, each “tenant” owns a share of the property and is entitled to a comparable portion of any income derived from it and must bear an equivalent share of expenses. You may sell, lease or will to an heir your share of the property. For example, Harried Homemaker, a single woman, as to an undivided ¾ interest, and Bill Buyer, a married man, as to an undivided ¼ interest, as tenants in common.
Other ways of vesting title:
• A Corporation – Legal entities, such as corporations, which are created under law, may hold title to real property. Corporations consist of one or more shareholders, but are regarded as a separate entity from the shareholders. Title remains with the corporation until the property is sold or the corporation dissolved and its assets disbursed.
• A Partnership – Similar to a corporation, a partnership is an association of two or more persons who conduct business for profit as co-owners under the Uniform Partnership Act.
• Trustees of a Trust – A trust is an arrangement in which legal title is transferred to a trustee, who holds and manages the property for the benefit of the beneficiaries named in the trust. You may have a family trust, for example, in which you and/or your spouse are the trustees until you die, at which time the designated successor trustee takes over. Title to real estate included in the trust is held by the trustee. As an example, Taylor Smith, trustee of the Smith Family Trust.
• Limited Liability Companies (LLC) – These legal entities are similar to corporations and partnerships, and are governed by an operating agreement.
If you hold title as sole owner or tenant in common, your property or share of property become part of your estate when you die.
In 2016, the state created the Revocable Transfer on Death Deed – sometimes referred to as a “poor man’s trust” – to allow property owners to designate one or more beneficiaries to inherit your property without creating a trust or a will. As with any legal documents, there are pros, cons and lots of fine print, so be sure to consult your attorney before going this route.
If you do not have an attorney, your trusted Realtor may be able to refer you to one.
No matter how you plan to hold title, if you are considering buying real estate, contact your local Realtor today.
Cher Wollard is a Realtor with Berkshire Hathaway HomeServices Drysdale Properties, Livermore.