Although many people aren’t aware, there are numerous approaches when it comes to titling your home. Each provide unique benefits as well as limitations, and it is beneficial to know which is the best option for you. Below are listed some of the most common ways a home is titled.
Title Ownership Options
Single persons have limited options when it comes to holding the title to a home. These options basically consist of holding the title in your own name as an individual or holding it in a type of trust. You can hold the title in your name alone, even if you own the property with one or more other people. Holding a property as a sole owner allows creditors the ability to force the sale of your home to pay off your debts in the event this would become necessary. The way to avoid this as well as avoid having your property probated is to hold it in a trust.
Holding the title of your home by way of joint tenancy with rights of survivorship allows married couples as well as two non-related individuals the ability to own a piece of property together. Rights of survivorship allows your ownership of the property to transfer to your surviving spouse or partner upon your death without having to pass through probate. This is a convenient way to pass real estate to a surviving spouse, but there can be negative tax consequences in the form of increased capital gains if the survivor sells the property.
Tenancy in Common
Tenancy in common gives each owner of the property the ability to use the whole property, despite owning just a portion. While available to married couples and two or more individuals, it is not commonly used amongst married couples. Upon death of either of the tenants, their share of the property goes through probate before it is distributed according to the will. If there is not a will, the share would be distributed according to the state law.
Consider a Trust
The only strategy to avoid a probate of a property after the owner’s death is to own the property through a trust. Here are a few ways this can be accomplished:
- Land Trust. With a land trust the sole asset is the property you are buying and the owner is the beneficiary of the trust. Land trusts offer a successor beneficiary which allows the property to pass directly to the beneficiary while avoiding probate.
- Qualified Personal Residence Trust. This trust allows you to discount the future value of your home which could possibly save you gift and estate taxes you would otherwise owe the government. With the Qualified Personal Residence Trust, or QPRT, you set the term of the trust. Upon its expiration, the beneficiaries receive the home regardless if you live in it or not; however, you can then rent the property from the beneficiaries. The benefits allow you to pay far less in gift tax on a lower amount.
- Living Trust. A living trust is a trust that may be revocable by the trust creator or settlor and is a way of passing assets from one generation to the next. Benefits of living trusts include the aspect of privacy since they aren’t public documents, as well as retaining complete control of the asset upon its inclusion into the trust.
- Family Limited Partnership. These types of trusts are designed to allow you to move wealth from one generation to another by making the beneficiaries small Limited Partners of a partnership that owns the property. This partnership also allows the General Partners to give small pieces of ownership over time to the Limited Partners.
This is just a broad overview of options regarding how you title your new home. For a more thorough exploration of what is the best option for you and your family, you should consult with your attorney before your closing, to ensure your home is titled to your best benefit.
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