A home is often a person’s most valuable asset, but many people do not think about how they should hold the title until the question is brought up at the time of sale or a refinance. However, this choice should be considered carefully. How a person holds their title will have long-term effects that reach far. There are several different options to consider.
Individual Name Even if a person is married, he or she can hold title in just one name. There are some disadvantages associated with this option. In the event the person holding title became physically or mentally incapacitated in an accident or due to an illness, the other spouse will likely need extra funds to pay for medical expenses and living expenses. A line of credit may need to be opened, or the other spouse may want to refinance the home. If this is the case, the court will have to appoint a person to act on behalf of the title holder. Even if a spouse is named in a will, this will not matter in this situation because the title holder is still living. Also, a power of attorney form usually ends at incapacity, so even a spouse with this power would be powerless in such a situation. In the event of incapacity, the court will focus on protecting the title holder’s assets. After they become involved, their involvement will continue until the title holder dies or recovers, which means family and friends will have no control and no say in decisions. Court proceedings are time consuming and expensive to put an end to after recovery. It is also important to consider what would happen if the title holder dies. The property will be subject to probate proceedings before the court will distribute assets to heirs. This applies whether a will exists or not.
Community Property There are nine different states that have forms of joint ownership between spouses, which is known as community property. These include Louisiana, New Mexico, Arizona, Idaho, Nevada, California, Wisconsin, Texas and Washington. When one spouse dies, his or her property automatically is given to the surviving spouse unless the survivor states otherwise. However, this type of arrangement means there could be multiple co-owners when one other co-owner dies and multiple heirs are entitled to a share. This could create problems in reaching important agreements when selling the property or in other situations. As a rule, the more co-owners there are, the likelihood of risks and problems is higher.
Joint Tenants With Right Of Survivorship The majority of married couples choose to hold title this way because it is free, easy and fair. Unmarried couples and parents who hold title with adult children often choose this option too. This helps avoid probate proceedings, but probate will still come in to play later when the surviving spouse dies if he or she does not name another survivor. Probate will also be an issue if both owners die at the same time. When adding a co-owner, the main owner loses complete control. This means if the new co-owner disagrees about something, both parties could end up in court. Also, if a co-owner becomes incapacitated, the court will likely get involved. Another problem with adding a co-owner is that this exposes the main owner to debts and obligations of the co-owner. If the other party is not a spouse, tax issues could also arise. Since wills do not have power over assets that are jointly owned, owners could inadvertently disinherit their intended heirs.
Revocable Living Trust With this instrument, a real estate title can be held by the trustee of the trust. In most cases, people elect themselves as trustees. People can still sell, buy and refinance as normal. In the event of incapacitation, the named successor will be able to take responsibility without the interference of the court. Married couples can be co-trustees, and this means successors would only take responsibility if both parties became incapacitated or died. There may be other options available to some such as tenants-in-common or tenants-by-the-entirety titles. To learn more about these options, call ACBI at 203-259-7580 or visit our website.