There are various ways to hold title to real estate. We are often called by clients to add a child or children to a deed. Though this is many times possible, it may not be the best choice.
To transfer real property when it is being sold, you must have title authority to make the transfer. It also must be cleared (free of liens or encumbrances) for the transfer to occur. Real estate ownership can take several forms. Each of these forms has implications on how ownership can be transferred and can affect how the property can be financed, improved, or used as collateral.
Investopedia’s article, “5 Common Methods of Holding Titles on Real Property,” looks at the ways in which to hold title to real estate property.
Joint Tenancy. This is when two or more people hold title to real estate jointly, with equal rights to enjoy the property during their lives. When one dies, their rights of ownership pass to the surviving tenant(s). The parties in the ownership need not be married or related, but any financing or use of the property for financial gain must be approved by all parties and cannot be transferred by will after one passes. Another disadvantage is that a creditor with a legal judgment to collect a debt from one of the owners can also petition the court to divide the property and force a sale in order to collect on the judgment.
Tenancy In Common. In this situation, two or more persons hold title to real estate jointly with equal rights to enjoy the property during their lives. However, unlike joint tenancy, tenants in common hold title individually for their respective part of the property and can dispose of or encumber as they chose. Ownership can be willed to other parties, and in the event of death, ownership will transfer to that owner’s heirs undivided. An owner can use the wealth created by their portion of the property as collateral for financial transactions, and creditors can place liens only against one owner’s specific portion of the property. Any liens must be cleared for a total transfer of ownership to take place.
Tenants by Entirety. This can only be used when the owners are legally married. This is ownership in real estate under the assumption that the couple is one person for legal purposes. The title transfers to the other in entirety if one of the couple dies. The advantage is that no legal action is required at the death of a spouse. There’s no need for a will to transfer the property, and probate or other legal action isn’t necessary. Conveyance of the property must be done in total, and the property can’t be subdivided. One spouse alone can’t transfer the property, so this adds some creditor protection for the couple. The house can’t be sold unless a judgment is against both owners. In the case of divorce, the property converts to a tenancy in common, and one owner can transfer ownership of their respective part of the property to whomever they want.
Sole Ownership. This is ownership by an individual or entity legally capable of holding title. The main advantage of holding the title as a sole owner is the ease with which transactions can be accomplished because no other party needs to authorize the transaction. The disadvantage is the potential for legal issues regarding the transfer of ownership if the sole owner dies or becomes incapacitated. Unless there’s a will, the transfer of ownership upon death can be an issue.
Community Property. This is a way for married couples to hold title to the property. However, it is only available in Arizona, California, Nevada, Texas, and Wisconsin. It lets one spouse’s interest in community-property assets pass probate-free to the surviving spouse, in the event of death.
Entities other than individuals can hold title to real estate in its entirety. Ownership in real estate can be done as a corporation. The legal entity is a company owned by shareholders but regarded under the law as having an existence separate from those shareholders. Real estate can also be owned as a partnership, which is an association of two or more people to carry on business for profit as co-owners. Real estate also can be owned by a trust. These legal entities own the properties and are managed by a trustee on behalf of the beneficiaries. There are many benefits, such as managerial influence, financial and legal liability, and tax considerations.
Reference: Investopedia (April 10, 2018) “5 Common Methods of Holding Titles on Real Property”
See also https://www.downslawfirm.com/what-is-a-life-estate-deed-and-how-does-it-work/