How Should I Hold Title to my New Property?

 

As an attorney, I frequently get asked how one should take title to their new property. There are a lot of options and there is no right answer. If you are buying the property alone, you would have three main options: 1) hold title in your own name, 2) hold title in a trust, or 3) hold title in a business entity. If you are buying the property with another person, you have even more options: 1) hold it as tenants in common, 2) hold it as tenants by the entirety, 3) hold it as joint tenants, 4) hold it in a trust, or 5) hold it in an entity.

Holding title in your own name: holding title in your own name is in some ways the simplest. No other documents need to be drafted, no entities or trusts need to be created, and lenders will usually prefer this method. However, that does not make it the best option. The draw backs would be

that you are in no way protected from liability and if you die, your heirs will have to go through probate which can be long and expensive.

Hold title as tenants in common: this is the simplest way to hold property when there is more than one owner. However, it will require the property to be probated after one owner dies, and it provides no liability protection. Widows/widowers are oftentimes surprised to find out that they owned property as tenants in common with their spouse and because of that we now must probate the property. This can be especially surprising and difficult when they have lived in the property for many years and thought as joint owner of the property they would automatically get it upon the death of their spouse.

Hold it as joint tenants: this would mean that two people hold title together as joint tenants with rights of survivorship. This means that if one person dies, the other person automatically inherits the full property regardless of what the decedent’s Will said or who the decedent’s heirs at law are. The benefit of owning property as joint tenants with right of survivorship is that probate can be avoided. However, if your joint owner is not who you would like to receive the property on your death this is a very bad idea. Furthermore, it still offers no liability protections.

Hold it as tenants by the entirety: this is essentially the same as owning property as joint tenants except it can only be used by two individuals who are legally married.

Hold it in a trust: holding property in a trust can be the best way to avoid probate. If you own only half a property you could still hold your piece of the property in a trust and then the trust could hold the property as tenants in common with your co-owner. Additionally, if you own the property with your spouse, you could form a joint trust which could own the whole property. A trust gives the most flexibility for distributing the property to who you wish after your death. It is also usually not much different than holding it in your own name, and as long as it is a revocable trust, will likely have no tax consequences during your life.

Hold title in an entity: holding title in some sort of entity such as an Limited Liability Company (LLC), Limited Partnership (LP), Sub-Chapter S Corporation (S-Corp), or a Sub-Chapter C Corporation (C-Corp) is the best way to get liability protection. If someone gets hurt on your property and they sue you, they will only be able to sue your new entity and not you personally. This is mostly used in situations where the property is used for a business purpose and not as a residence for the owner. Additionally, using a pass-through entity such as an LLC, LP, or S-Corp allows you to get this protection without having to pay an additional layer of taxation. These types of entities do not avoid probate. However, you could hold title in an entity and then hold the entity’s shares or membership interests within a trust. This way you get the best of both worlds.

Before purchasing a property, you should always speak to your attorney about what is best for you. Do not simply go along with the default.

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