Understanding Various Forms of Property Ownership

Individual Ownership

This is property titled solely in the name of one individual. It could be real property such as a home, land or rental property. It could also be personal property such as an automobile, boat, snowmobile and so forth. This type of ownership could also include investments such as stocks, bonds and mutual funds and so on. Or finally it could include a business interest solely in the name of one person.

Joint Tenancy with Right of Survivorship

Joint tenancy with right of survivorship is an arrangement where two or more people own property jointly. In most states, for those owners who are living, each person is considered to own his or her proportional amount of the property. For example, if there are five owners, each owns 20%. With a right of survivorship, when one of the owners dies, the value of the entire property transfers to the remaining living owners with each retaining his or her proportional share.

With jointly owned real estate, in most states, the property can't be sold or mortgaged without the consent of all the joint owners. This is one of the disadvantages of this kind of ownership. For example, if Mary decides to include her 4 children on the title of her home, she exposes herself to the following risk.

• Ownership interest is always fixed by the proportional share and unequal shares of ownership cannot be specified.
• If one of her children is pursued by a creditor, the child's share in the home can be gotten to.
• If one of her children ends up in divorce, the ex-spouse could have a claim against the property.
• If one of her children ends up being sued, the child's portion of the home could end up in a settlement.
• If Mary wants to retitle the home, do a reverse mortgage or refinance any other way she must obtain permission from all the other owners.
• Mary must have permission from the other owners to live in her home unless she has a life estate agreement.
• If Mary wants to sell the home, she must obtain permission from the other owners.
• If one of Mary's children dies, that person nor that person's heirs are entitled to an inheritance of the home and the other children get a disproportional share.
• Joint tenancy with right of survivorship trumps any provisions in a will even if the will prescribed a certain division among the 4 children. With right of survivorship, only the living children will get the assets and deceased children will be left out.
• One of the children can transfer his or her title to someone else and does not need approval by the other co-owners. This could create significant friction between the new owner and the other joint owners.
• One of the children can force a property sale, even if the other tenants don't want to sell, by pursuing what is called a "partition lawsuit."

Tenancy by the Entirety

This is joint ownership with rights of survivorship recognized in 24 states. Tenancy by the entireties is allowed between spouses only in Alaska, Arkansas, Delaware, Florida, Hawaii, Indiana, Kentucky, Maryland, Massachusetts, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, Vermont, Virginia, Wyoming, and the District of Columbia.

It is only available between a husband and a wife. This form of ownership treats the married couple as if they were one entity. Therefore, the death of one spouse does not have any consequences related to probate or any other estate issue. It's as if a death has not occurred and the surviving spouse simply takes over the title. While they are living, either member of the couple can access the funds without permission of the other. If it is real estate, consent is required for a sale or mortgage.

When one spouse dies, the property automatically reverts to the living spouse and bypasses any intestacy rules normally imposed by the state. There is also an added special feature to this type of ownership. The debts of one spouse cannot be attached as a lien on property that both spouses own together. If the spouse with all the debt dies first, the surviving spouse keeps all the assets free and clear of liens. In other words, creditors have no claim against the property inherited by the spouse.

Tenancy in Common

This is an ownership with two or more people where each person owns a designated percentage share in the property. For example, let's look at the example with Mary and her 4 children. With joint tenancy (Mary and her 4 children), each owns a proportional share -- 20%. With tenancy in common, the ownership amount can be specified. For example this could be the property division between Mary and her 4 children for tenancy in common - 5%, 10%, 50%, 15%, 20%. There is no right of survivorship with this arrangement. In other words, the surviving owners do not inherit the deceased owner's portion. If an owner dies, the owner's interest in the property passes to the owner's heirs.

Title by Contract

These are ownership arrangements that allow for the property after death to pass to designated beneficiaries. These types of properties include the following:

• Life insurance contracts
• Retirement accounts such as IRAs, 401(k)s, 403b's, 401(a)s, SEPP, SIMPLE and so on
• Deferred annuities
• Life estates
• Revocable living trusts
• Bank accounts with POD arrangement
• Stocks, bonds and mutual funds with TOD arrangement
• Ownership of automobiles, boats and so on -- in a few states -- that allows for beneficiary arrangements

These arrangements also trump any provisions of a will. This fact must be considered when creating a will.