How should I hold title?

Purchasing a home has many legal ramifications. You will need to consider how you will “hold title” to the property. This is such an important decision that you should consult with an attorney or accountant for advice as you make the choice. Because it is so crucial to the ensuing decisions, this determination should be made early in the mortgage process. Here is an overview (not to be taken as a legal description) to help you understand the possibilities available to you:

Sole Ownership
Sole ownership means holding title alone, as a single person. Even a married or divorced spouse may hold title as a sole owner. However, a spouse would formally give up any legal rights to the property. At the death of a sole owner, the distribution of the property is handled through the probate court, often a lengthy process (9-12 months).

Living Trust
Living trusts have several advantages. They are created while you are still alive, designated as revocable or irrevocable. Even though you transfer ownership of your property to the trust, in the case of a revocable trust, the trustee may buy, sell or finance assets. You, the trustor, create the trust for the beneficiaries, who you will name in the trust agreement. You may also serve as the trustee (manager of the property held in trust) or appoint a third party. A revocable living trust allows you to:

• control the distribution of your estate without some of the hassle of going through the probate court – plus you can change or cancel the trust at any time before your death
• avoid some of the litigation common with wills
• create joint or separate revocable living trusts with your spouse
• minimize estate taxes depending on how your attorney or CPA councils you to set up your trust structure

Tenancy in Common
The tenancy in common method of holding title allows more than one person to hold and sell separate legal titles to portions of a single property. Any number of people can be co-owners, with varying percentages, which are specified on the deed. However, each tenant's portion of ownership does not have rights of survival, but must be distributed through the probate court. This method of holding title opens up the possibility of owning property with a stranger and/or the possibility of a forced sale because of a partition lawsuit.
 
Joint Tenancy
Property held under the joint tenancy title belongs equally to all co-owners, with only one title to the property. Rights of survivorship do apply; the surviving owners acquire equally the deceased tenant's share. The distribution does not have to go through probate, nor is it affected by the deceased's will.

Community Property
Some states allow husbands and wives (only) to hold equal interest in a property. This allows them to will their half to whoever they choose, including the surviving spouse. If the property is passed on to the spouse, it takes on a new stepped-up basis at market value, providing some tax advantages.

Legal Entities
Property can also be held by an entity rather than an individual.

A Trust
may hold property for the benefit of one or more individuals (beneficiaries) and is managed by a trustee that may or may not be the same as the person who originally created the trust

A Partnership
may hold title to property for the partners who have varying interests in the property or the partnership

A Corporation
may hold title to property, safeguarding it from personal judgments or debts of the corporate shareholders, who only own an interest in the corporation not title to the corporate assets

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