Titling Your House

By Linda S. Perlman

One of the most important decisions that you will need to make when buying a house is how you take title to the property. There are several ways that property can be owned.

Sole Owner. You own the property individually in your own name. Words in the deed such as “William Smith, as sole tenant” establish title as sole ownership.
Tenants in Common. This is a form of co-ownership where two or more people own property together. Words in the deed such as “William Smith and John Jones, as tenants in common” establish title as tenants in common. Each tenant in common owner has a divisible interest in the property. Most tenant in common ownerships are divided equally (i.e., 50/50), but the co-owners do not have to be equal owners of the property. In that case, the deed might list the title as “William Smith as to a 75% interest and John Jones as to a 25% interest, as tenants in common.”
In a tenancy in common, on the death of one owner, the deceased owner’s percentage ownership in the property becomes a part of his/her estate and that estate must be probated. The deceased owner’s property interest does not transfer to the surviving owner. If the deceased owner left a will, that portion of the property passes to his/her heirs named in the will, who then become new tenants in common with the surviving property owner. If the deceased owner dies without a will (referred to as “intestate”), then the laws of the jurisdiction where the decedent was domiciled will control the distribution of the property.
Joint Tenants. Under this form of co-ownership, property is owned by two or more persons in equal shares. When one joint tenant dies, his/her interest in the property automatically passes to the surviving joint tenant(s). This feature of joint tenancy ownership is known as the right of survivorship. Probate is not required. In fact, if the deceased owner had a will leaving his/her share of the jointly owned property to someone else, that other person would have no claim to the property. (An exception would be if both joint tenants died simultaneously, in which case their wills would control their interest in the joint tenancy property.) Words in the deed such as “William Smith and John Jones, as joint tenants” establish title in joint tenancy. Although the magic words “with right of survivorship” are not required, it is recommended that the deed expressly state that a joint tenants title is held with right of survivorship in order to make it clear that the parties’ intent is to hold title as joint tenants. If property is owned by two or more persons and the deed does not specify the type of tenancy, then the owners will be considered to be tenants in common.
Tenants by the Entirety. This is a form of joint tenancy limited to legally married couples. The major differences from holding title as joint tenants are that neither spouse can sell or transfer the property without the other spouse joining the transfer (except to the other spouse) and that a judgment creditor of one of the spouses cannot force a sale of property owned as tenants by the entirety (this can only be done if both spouses owe the money judgment). By contrast, a joint tenancy ownership can be unilaterally severed by one of the joint tenants and a judgment creditor who has a judgment against one of the joint owners can force the sale of the property in order to pay the judgment (in that case, the joint tenant who did not owe any money will get one-half of the sales proceeds and the amount of the judgment debt will be deducted from the other joint tenant/judgment debtor’s share of the proceeds).
Life Tenants. A life tenant has the right to reside in the house for his or her lifetime. In some cases, the life tenant also has the ability to sell the house (this is called a life estate “with powers”), thereby defeating the interest of the remainderman. (The person designated to receive the house upon the death of the life tenant is called a “remainderman.”) The document establishing the life estate also may establish other restrictions or conditions on the life tenant’s residency. In general, the life tenant pays the day-to-day expenses of the house, such as property taxes, homeowner’s insurance, and ordinary repairs, while capital improvements are divided between the life tenant and remaindermen based on the life expectancy of the improvement. A life tenancy might be established in, for example, a second marriage situation where you want your spouse to be able to remain in the house, but upon the spouse’s death, ownership of the house would revert to your children.
Trusts. While not technically a form of ownership, real property may be owned by the Trustee of your Living Trust (or other type of trust). Upon your death, the property would pass to the successor trustees and/or to beneficiaries you have designated in the trust agreement.
Entity Ownership. Real property also can be owned by an entity, such as a corporation, limited liability company, or general or limited partnership. Entity ownership is beyond the scope of this article; however, you probably do not want to own your principal residence through an entity. For example, if a house in Maryland is owned by a corporation, then, even if you are the sole shareholder-owner of the corporation, the property would not be eligible for the homestead property tax credit which limits the increase in assessments that your real estate taxes are based on to 10% or less each year.

What form of property ownership is best for you? Most married couples choose to be tenants by the entireties, but that might not be the right decision for every married couple. In addition, estate planning considerations may factor into the decision on how to hold title to your house. You and your co-owner also may decide to enter into a formal written agreement, prepared by an attorney, to cover situations likely to arise during joint ownership of your home. Key elements of such a property ownership agreement would include: provisions for the division of the house expenses; provisions for one owner to buy out the other owner’s interest in the property, if the owners decide to go their separate ways; and provisions to resolve disputes. ■