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Alternative Ways To Own Real Estate
By Jeff Riddell
If you’re ready to start your real estate investment career—or have already started and may be acquiring more properties—we need to talk about how to hold title. In other words, who should be the “grantee” in the deed you receive. The first choice, of course, is yourself, or you and your spouse if you are married. Most people take title to their properties in their own name when they are beginning their real estate investment careers because it is simple and cheap. You sign the purchase contract in your own name and the seller deeds the property directly to you.
If you are married, a deed to you and your spouse normally creates a tenancy by the entireties; tenancy by the entireties is how husbands and wives create the estate referred to as joint tenant with right of survivorship (JTWROS). JTWROS means that the surviving co-owner becomes the sole owner if the other co-owner dies. No probate is required and normally the death certificate of the deceased co-owner just needs to be recorded in the county where the property is located. This is usually what husbands and wives want unless they are splitting their estates to maximize the federal estate tax exemption available to each of them. JTWROS can also be used by other groups of co-owners as long as they so indicate in the deed, i.e., “Gary Brown and Robert Clark, as joint tenants with right of survivorship.”
But usually non-family co-owners of real estate want their interests to go to their own heirs—not to the other co-owners. If this is the case, tenant-in-common is the normally the way to go. In most if not all states, not mentioning a particular mode of ownership among multiple owners results in tenant-in-common ownership by default. In other words, if the grantee in a deed is “John Smith and Michael Jones” and nothing more is said, it is presumed that this creates a tenancy-in-common, not JTWROS. For property ownership by more than one set of husbands and wives, each couple, between themselves, can be tenants by the entireties (JTWROS) while, as to any surviving spouse, ownership can be tenant-in-common. In this way, a surviving spouse will become sole owner of his or her entire husband and wife interest upon the death of his or her spouse; but on the death of any surviving spouse, the interest will go to his or her heirs and not to the other husband and wife co-owners of the property.
Living trusts can also be owners of investment real estate. Living trusts, however, are not entities separate from their owners while the owners are alive, and become separate entities only when the creator of the trust dies. If you have arranged your affairs so that your assets pass by living trust, make sure you keep the trust fully funded by taking title to your real estate investments in the name of the trust.
Owning investment real estate in your own name or your living trust may be cheapest, but it’s not the safest. When you own real estate in your own name—including your living trust—someone who makes a claim for injury, death or property damage occurring at the property may go after all of your assets, not just the equity in the property where the claim arose. Although some people are willing to hedge risk by carrying plenty of insurance, others own their investment real estate in entities that create a shield so that claimants can only pursue the assets owned by the entity itself—and any available insurance proceeds, of course. I will discuss entity ownership in the next editorial.
Jefferson F. Riddell is a Florida Board Certified Real Estate attorney with thirty-five years of experience assisting people with a variety of residential and commercial real estate matters. U.S. 1031 Exchange Services, Inc is a 1031 exchange qualified intermediary (QI) and a member of the Federation of Exchange Accommodators (FEA). As President of U.S. 1031 Exchange services Jeff has been facilitating 1031 exchanges for more than twenty years. Jeff has been awarded the Certified Exchange Specialist (CES) certification. Jeff may be reached at 941-366-1300 or via email at jeff@us1031.com [2]. www.us1031.com [3]
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