Property Ownership in Estate Planning
A large part of estate planning is how assets are titled. There are five common ways that are used in the titling of assets. Also equally important in estate planning is to ensure that the correct beneficiaries are designated on your financial planning accounts (including, but not limited to: checking, savings, other banking, brokerage, life insurance and/or retirement accounts). The best time to check the titling of all of your assets is when you create a new estate plan, or revise a prior estate plan.
Assets can be titled on one or three major ways. Individually, concurrently or in a business entity. Concurrent ownership includes tenants in common, joint tenancy and tenants by the entirety (also known as husband and wife). Important to note is that while most states follow common law property rules, there are several states which follow community property rules.
Tenants in commons share the undivided rights to property concurrently, however, their interests are alienable, devisable, descendible. That means that property concurrently owned in tenants in common can be sold, bequeathed through estate planning or otherwise inheritable by descendants. Take the example of Tom and Jim owning a home as tenants in common (50% each). If Jim passes away and leaves his half to his son, John, then the home will be owned by Tom and John (50% each).
Joint tenants also share the undivided rights to property concurrently. A joint tenancy can only be created when the four unities exist (same time, same title, same interest, and the same possession). The language must also indicate that the grantor intended to convey a joint tenancy. Joint tenants benefit from probate avoidance because their interests pass by survivorship. In other words, when one joint tenant passes away, the other joint tenant automatically inherits the deceased joint tenant’s interest. If there are multiple joint tenants, then each surviving joint tenant will inherit the interests in the same proportion (consistent with the four unities). A joint tenancy can further be severed when one of the unities is disturbed. One example of this is a sale of the respective joint tenant’s interest to a third party. Upon severance, all of the joint tenant interests convert into a tenancy in common.
Tenants by the entirety (“TBE”), which is reserved for married individuals, share the undivided rights to property concurrently. Like joint tenancy, TBE ownership benefits from probate avoidance due to survivorship. However, unlike joint tenancy, tenancy by the entirety cannot be severed by sale without the consent of both spouses.
Finally, property can be owned by a business entity. There are many types of business entities including but not limited to: limited liability company (“LLC”), partnership, limited partnership (“LP”) and corporation. Business entities can also be incorporated in any U.S. state or even internationally. Deciding what business entity to use should be made on a case-by-case decision based on the asset category. The same goes for choosing the jurisdiction in which to incorporate the business.
Contact Capital Planning Law, PLLC for your complimentary consultation to discuss your estate planning, business law, probate, guardianship and/or real estate needs.