When working on your estate plan, your financial planner and attorney will likely ask you the same question many times: "How is that asset titled?" How you set up your assets affects what happens to that asset after you die. Perhaps no asset is more complicated than real estate when it comes to title and transfer.
Owning real estate with another person
Most people know that title to real estate is important, but don't understand why. Title means you have the right to own and possess a piece of property. Other people may have an interest in the property, but you have the main legal interest. More than one person can be in title at one time, however. There are three ways you can hold title with another person:
- Joint tenant with right of survivorship. With joint tenancy, two or more people in title own the entire property together, and if one of them dies, the other becomes the new owner. The property does not have to go through probate. More than two people can be joint tenants.
- Tenants by the entirety. Most married couples choose this option for joint ownership and it is only available to married couples. Tennessee is not a community property state, which means that if you are married, your spouse must be on title to the property to have an ownership interest in any property, aside from the homestead. Tenants by the entirety is similar to joint tenancy, but also provides some creditor protection from the other spouse's debts.
- Tenants in common. Tenancy in common is the default title for property in Tennessee. Everyone on title has an equal share in the title, with no right of survivorship. For example, if two brothers own the property and one dies, the other brother still only owns half the property and the deceased brother's half will have to go through probate. Many people choose this option when they want to be sure their interest in the property will go to their heirs, rather than the other owner.
Owning real estate by yourself
If you are the sole owner of the property, you have many choices for how to handle the transfer of that property once you are gone. This also applies to partial interests you may have in real estate as a tenant in common. You must decide how to pass your interest. You can execute some of the options before you die, or set it up to transfer after you die.
- Trusts. Many people place their assets in a trust in order to avoid probate. A trust is an entity, like a business, that will hold your assets for your benefit. Trusts come in many varieties. You should discuss your trust options with your attorney or other professional advisor.
- Outright transfer. Some people choose to transfer property to their children or another loved one before they pass away for many different reasons, but there can be tax consequences for these transfers.
- Wills. You always have the option of transferring your property in your will, which has the benefit of stating exactly how and to whom you would like to transfer the property.
These are just a few of the options you have for planning the transfer of your real estate after you are gone. The important thing is to understand how your property is titled so you can choose the right option for your estate plan.