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Financial Answer Center

Critical Decisions

Property Title Issues

The manner in which property is titled affects how the property can be disposed of during a person's lifetime, who receives the property upon death of an owner, and how taxes and income are apportioned to the owners. Common Forms of Property Ownership:

  • Sole tenancy
  • Joint tenancy with right of survivorship
  • Tenancy by the entirety
  • Tenancy in common
  • Community property
  • Life estates and remainder interests

Sole Tenancy

Sole tenancy is ownership by a single party who has complete title to the property. Property held in a sole tenancy is generally subject to probate and pass according to the provisions of a will, unless a successor beneficiary has been designated. Assets held as sole tenancy is includable in the gross estate and applies against your applicable credit amount. To make best use of the applicable exclusion amount, consider titling assets, up to $11.58 million in 2020 ($11.4  million in 2019), in individual names.

Joint Tenancy with Rights of Survivorship

A joint tenancy with right of survivorship can be created by two or more persons, not necessarily related to each other, for many types of personal property including real estate. The property is owned equally by two or more persons who have rights of survivorship. When one joint tenant dies, the property automatically passes equally to the remaining joint tenants outside of probate. Usually one-half the value of these assets is included in a decedent spouse's estate.

Generally, joint ownership provides the benefits of survivorship without probate, and immediate access to cash.

However, joint ownership can result in loss of control over the ultimate disposition of property, and increased federal estate and state inheritance taxes. Ordinarily, your will controls only probate property. If you hold property in joint names with rights of survivorship or own property that has a designated beneficiary (e.g., life insurance or pension plans), these items will not be controlled by your will. In short, the ownership of property should be coordinated with the provisions of your will, otherwise property ownership can override the will.

Tenancy by the Entirety

This type of joint ownership has a survivorship feature, and can exist only between spouses. Neither spouse can restrict or dispose of the property without the other spouse's permission.

Generally, one-half the value of a tenancy by the entirety is included in the estate of the first spouse to die.

Tenancy in Common

Two or more owners, including spouses, can own property jointly without a survivorship feature and with equal or unequal fractions of ownership. This type of ownership is similar to sole ownership in that when one of the owners dies, the property interest owned by the deceased does not automatically pass to the other joint tenants. Rather, the property passes by the deceased owner's will or state intestacy laws. The value of the fractional ownership interest in the property at death is includable in the decedent's gross estate.

Community Property

In community property states - Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Puerto Rico, Texas, Washington, and Wisconsin, generally all property acquired during marriage is considered community property. Each spouse owns an undivided one-half interest in the property, regardless of how the property is titled. When one spouse dies, the property does not automatically pass to the surviving spouse but to the designated beneficiary of the property as named by the decedent spouse. Both spouses have the right to dispose of their share of community property through their wills.

Property of either spouse owned prior to marriage, or acquired by gift or inheritance during the marriage is generally considered separate property. Generally, if property has been commingled, even if such property was originally separate property, all will be deemed to be community property. However, you may be able to create separate property through a gifting strategy from one spouse to the other or by declaration in a property agreement executed by both spouses. Because of the tax and legal consequences of such a gift or property agreement, legal counsel or another professional should always be consulted.

Life Estates and Remainder Interests

A life estate is the right to use property or receive its income until death. A remainder interest is the right to receive all that remains when one (or more) life estate ends. Thus, if a donor gives property to a recipient to use during the recipient's life, and at the recipient's death, the property goes to a second recipient, the first recipient has a life estate and the second recipient has a remainder interest. An owner of property can give or sell a remainder interest while retaining a life estate. Upon the death of the owner of the life estate, generally the remainder interest holder will receive the property without the need for probate. The property, however, may be includable in the decedent's gross estate.

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Securities and insurance products are offered through Osaic Institutions, INC., Member FINRA/SIPC. Osaic Institutions, INC. and FB Wealth Management, a division of First Bank, are not affiliated. We do not provide tax advice. Consult your tax advisor. NOT Bank Deposits NOT FDIC-Insured HAVE NO Bank Guarantee NOT Insured by any Federal Government Agency May Go Down in Value