How Should You Hold Title to Your Home?
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The manner in which your title is held, also known as title vesting, refers to your legal rights related to a property you are buying or one you own. With so many decisions to make during the homebuying process, you might not think about how you should hold title. However, title vesting carries a lot of weight when it comes to your legal rights to sell or refinance your home in the future, as well as what happens to your property after you die.
In this article, we’ll help you answer the question of how you should hold title to your home, as we explore the best ways to hold title and the implications of each option.
- What are the different ways to hold title?
- How should I take title to my home?
- Why how you hold title is important
- How do I change the title of my house?
- Final thoughts
What are the different ways to hold title?
Choosing the manner in which your title is held depends on why you’re buying it, what you’re using it for and what you want to happen to the property after you die. Each way gives you certain rights while you own the home, and provides direction for what happens if you or another owner dies.
One of the overall goals of choosing ownership vesting is to avoid a situation where the ownership of the property is decided by a court, which is called probate. Here are some of the most common title options:
1. Joint tenancy with right of survivorship (JTWROS)
This is often touted as the best way to hold title for most married couples, but also applies to those who plan to own a property with other family members. Joint tenancy with rights of survivorship provides everyone with equal ownership rights that automatically pass on to survivors in the event of an owner’s death.
When you hold title with someone else with right of survivorship, the ownership can’t be divided up. Under this type of vesting, the owners don’t have to be married, and any number of persons can own the property together.
2. Community property with right of survivorship
This type of vesting is only for married couples. Marital status is one of the most important things to disclose when it comes to holding title. If you purchase a property without disclosing that you are married, you could give away property rights to a spouse that could be contested in divorce court, preventing you from being able to sell the home in the future
If you live in one of nine community property states in the U.S., which include Arizona, California, Idaho, Nevada, New Mexico, Texas, Louisiana, Wisconsin and Washington, then community property laws could dictate who gets what real estate in the event of a divorce.
In a community property state, any joint real estate interest will be split evenly in the event of a divorce. However, marrying doesn’t automatically give a spouse ownership to real property.
In non-community property states, on the other hand, home ownership title can be split up in amounts agreed upon by both parties.
If you’re unsure about the legal ownership rights for real estate in your state, contact a local real estate attorney to help you make your title vesting decision.
3. Tenancy in common
Perhaps you want to buy a property with several people, and you decide that you want the manner in which your title is held to be based on how much money you put down on the property. Tenancy in common allows you to divide up the interest unequally, and any number of people can hold title. A word of warning — you’ll also need to decide who gets the tax benefits of ownership. Your local treasurer’s office won’t divide up the property tax bill like a restaurant order.
Each owner has their own separate, legal interest in the property and an equal right to possess the property. If a tenant in common dies, the rights don’t automatically go to the other owners, and the interest either goes to heirs or to a probate court if there is no will, which is why it’s important to create a will after buying a house. For example, your sister may decide that she wants her interest in the house to be passed on to her children after her passing.
4. Sole ownership
This is exactly what it sounds like: One homeowner owns all rights, title and interest to the property. A married person can hold title “sole and separate” from a spouse, meaning the spouse doesn’t lay claim to any of the property.
If the owner dies, the property is either passed on to heirs, or goes through probate to determine how it will be transferred.
5. Living trust
Real estate can be held in a trust, but there may be additional requirements when it comes to taking out a mortgage in a trust. Typically, the trust will outline what will happen to the interest in the property in the event one of the trustors dies. Lenders want to confirm there are no provisions of the trust that could affect their ability to collect on the mortgage.
Having a living trust provides the clearest path to stating your intentions for any real estate you may own after you die. While your title vesting may give an indication of your wishes, a living trust provides specific details to avoid any confusion among heirs about how the property is to be handled upon your death.
How should I take title to my home?
Now that you know some of the most common methods for holding title, you have to determine how you should hold title. The table below provides a basic overview of different types of title, including who they are the best for and what the disadvantages are.
|Type of title vesting||Best way to hold title if you:||Not a good option if you:|
|Joint tenancy with right of survivorship (JTWROS)||
|Community property with rights of survivorship||
|Tenancy in common||
Why how you hold title is important
The manner in which your title is held provides a road map for what happens to a property should one or multiple owners pass away. More specifically, here are some of the key reasons title vesting is so important:
- It guides who gets profits from the sale of your home after the death of all owners: If your wishes are that the home be sold upon your death, the division of any funds from the sale will be based in part on how you held title at your death. If you have a trust or a will, you can allocate a certain percentage of funds to different family members. The goal is that your intentions are clear — if they aren’t, a court will have to determine what is in the best interest of all of the parties claiming some sort of inheritance to the property.
- It indicates what happens with the property the death of an owner: Whether you want your home to go to your spouse after you die or to a great grandchild in the future, title vesting provides guidance to survivors about what should happen to the property when you die.
- It determines who gets tax benefits if one owner dies: This is most likely an issue only if title is held as tenants in common, where title and interest to the property can be divided up unevenly. If your intentions aren’t clear, the heir to your interest could end up fighting a battle with the other owners over who gets what ownership benefits.
- It may prevent probate: In order to avoid probate after both owners die, it’s important to either add heirs to title before you die with rights of survivorship, or have a trust prepared that indicates your last wishes.Title vesting is the most valuable when it comes to ownership for joint tenants or community property with rights of survivorship. If one owner dies, the surviving owner automatically gets the property.
How do I change the title of my house?
Any change in ownership has to be prepared with a deed, witnessed by a notary and recorded in a local recording office. Disclaimer and quitclaim deeds are the most common types of deeds used to transfer ownership in and out of a property.
Any time someone is added as an owner to a home or someone with an interest in your home records a lien, such as a mortgage lender, changes are made to the deed that give those parties ownership rights.
For example, you may buy a house when you are single, and then get married and want to add your spouse as an owner. To add your spouse, you both must sign a quitclaim deed and record it with the local recorder’s office. You are basically granting your spouse legal permission to own the home once the deed is recorded.
If mortgage lenders record a lien on your home, they don’t take ownership but they have the right to take ownership if you default based on the terms of a deed of trust. That means you own the house, as long as you pay the mortgage on time. If you fall behind and the lender forecloses, the deed of trust gives them the right to take ownership of your home and sell it to recover the cost of the loan they made to you.
Just because you opt to hold title in one manner when you purchase a home doesn’t mean you can’t change the ownership at a later date. As time goes on, your wishes for the property may change, and if they do, it may be a good idea to express those wishes in a living trust. You’ll avoid the possibility that the property gets tied up in court probate proceedings, which can be costly in time and legal fees.