Authored by Kristin Gifford
How You Title Your Property Does Make a Difference
In the excitement of closing on the purchase or refinance of real property, it is easy to overlook and/or procrastinate on ensuring proper titling of such property. Still, proper titling of real property is a critically important step in estate planning and lack of attention to titling can create can unintended consequences for you and your loved ones.
Below are just three reoccurring examples that I have experienced in my practice. (Note that the names and some details have been changed for confidentiality reasons). All of these situations could have been avoided with proper attention and planning.
Grandpa Bill owned property as a sole owner. Upon his passing, he wanted to avoid probate to ease the transition of his property AND was adamant that his five grandchildren received an equal share of the property. A neighbor told him that if he added one of his grandchildren as a joint tenant to the title of his property, then the property would pass to the grandchild outside of probate and that the grandchild could then sell the property and divide the proceeds among the five grandchildren. So that was what he did. He added his oldest grandson, Jim, as a joint tenant.
After adding Jim to the title of the property, the property was now subject to Jim’s creditors. When Grandpa Bill passed away, he did meet one of his goals and the distribution of the property avoided probate because Jim became the new sole owner of the property. However, after Jim sold the property, he never divided the proceeds among the five grandchildren. Jim felt that because Grandpa Bill only added him to the title, Grandpa Bill intended that he receive the whole property, and due to the title of the property, Jim had no legal obligation to divide the property or proceeds from the sale among the grandchildren.
What Should Have Happened
With proper guidance, he could have easily met and surpassed his goals. Grandpa Bill could have created a trust and held the title of the property in the trust. Doing so would have met his goal of avoiding probate but also would have prevented the property from being subject to Jim’s creditors and allowed Grandpa Bill to ensure that all five grandchildren received an equal share of the property or proceeds from the sale according to the parameters set forth by Grandpa Bill.
Bob and Susie were in their mid-sixties, and this was a second marriage for both. Susie had children from her first marriage and had created a revocable living trust that named just her children as beneficiaries. Bob and Susie purchased a home in Nevada that they titled in their names as community property. Their intent all along was that the survivor would receive the house for the remainder of their life.
Susie passed away first. However, because the property was INCORRECTLY titled as just “community property” and NOT “community property with the right of survivorship”, Bob was forced to go through probate as to Susie’s half of the property. Her will stated that her assets were to pour over into her revocable living trust, which meant that at the conclusion of the probate, Bob now owned the home with Susie’s revocable trust of which Susie’s children were the only beneficiaries.
What Should Have Happened
With proper guidance, Bob and Susie could have correctly titled the property or could have created a trust to hold title of the property and to control the distribution of the property during the life of and after the passing of the surviving spouse.
Dick and Colleen were in their early forties. Dick was the sole “bread-winner” of the family allowing Colleen to stay home to care for their two young children.
Dick suffered a heart attack and passed away suddenly. While grieving his death and comforting their two young children, Colleen discovered that their home was titled in Dick’s name as sole owner. She was forced to endure the expense and duration of probate to transfer ownership of the home to her.
What Should Have Happened
With proper guidance, Dick and Colleen could have titled the property to avoid probate upon the passing of the first spouse or could have created a trust to hold title of the property to avoid probate upon the passing of both spouses and set forth parameters for the use of their assets for their children.
As the above examples illustrate, proper titling of real property is important and should consider the owner’s situation and goals. While we recommend that owners consult with an attorney for this planning, below is a brief summary of titling of real property. Title affects what the owner(s) can do or is obligated to do with the property during his or her lifetime, and how and to whom the property is distributed upon the owner’s death. There are several ways to take title to real property which vary by state. Title to real property may be held by a single individual or entity known as sole and/or separate ownership, or by two or more individuals or entities known as co-ownership. For example, in Nevada, sole ownership vesting includes a single man/woman or a married man/woman as his/her sole and separate property. Co-ownership vesting includes as joint tenants, as tenants in common, as community property, or as community property with right of survivorship. Other vesting includes a transfer of death deed, a trustee of a trust, or an entity.
The distribution of real property upon the death of an owner will depend on the title and vesting of the property. In Nevada, real property that only has the decedent’s name on title at the time of death must go through probate. While real property titled as sole ownership in the decedent’s name will have to go through probate, the distribution of real property titled as co-ownership will depend on the vesting of the property.
Community property is a form of vesting to property owned equally by married persons or by domestic partners. In Nevada, upon the death of an owner, if the decedent’s name is on title for his or her share, that share will be subject to probate. Community property with right of survivorship is also a form of vesting to property owned by married persons or domestic partners but upon the death of an owner, the decedent’s ownership ends, and the survivor owns the property. The property is transferred to the surviving owner through the recording of an affidavit of survivorship, and probate is delayed until the passing of the surviving owner for property held in the owner’s individual name. Joint tenancy is a form of vesting to property owned equally by two or more persons whereby upon the death of a joint tenant, title is conveyed by operation of law to the surviving joint tenant(s). Again, the property is transferred to the surviving joint tenants through the recording of an affidavit of survivorship, and probate is delayed until the passing of the last joint owner for property held in the owner’s individual name. Tenants in common is a form of vesting to property owned by two or more persons in undivided fractional shares, and each co-tenant may direct his or her ownership in the property. Upon the death of a co-tenant, his or her share will be distributed according to that co-tenant’s estate planning. Again, if the deceased co-tenant held his or her interest in their individual name, that portion of the property will be subject to probate.
While there is no correct titling of assets for all individuals, it is important to review the current title of your real property, recognize and consider the options available, and take action to ensure the title of your real property is right for your situation.