Property Ownership Types - FAQs
What is sole ownership in real estate?
Sole ownership, or an estate in severalty, occurs when property is held by one person. Despite what the term “severalty” might suggest, it means ownership is “severed” from others, allowing an individual to own property independently.
What are the advantages of sole ownership?
The primary advantage is flexibility. The sole owner has complete autonomy to make decisions about the property, such as purchasing, selling, renting, and managing without needing consent from others.
What responsibilities come with sole ownership?
Sole owners must manage all aspects of the property, including setting rents, finding tenants, maintaining the property, or hiring someone to do so. They also bear the full financial burden, making it less accessible for those with limited funds.
What does concurrent ownership mean?
Concurrent ownership refers to property held by two or more persons at the same time, such as with tenants in common or joint tenancy arrangements.
What are tenants in common?
Tenants in common is a type of concurrent ownership where each person owns an undivided interest in the entire property. They have independent rights to their share and can sell or mortgage it without the others’ consent.
How is the size of ownership determined among tenants in common?
Unless otherwise stated, the law presumes equal interests among tenants in common. If unequal shares are intended, they must be specified as a percentage or fraction of ownership in the deed.
What happens to a tenant in common’s interest upon their death?
The interest of a deceased tenant in common passes to their heirs or devisees, not to the surviving co-owners, unless otherwise directed in a will.
What are the responsibilities of co-owners in a tenancy in common?
Co-owners must pay their proportionate share of property expenses, such as taxes, repairs, and debt. They can also request a court-ordered partition if they cannot agree on property management or sale.
What is joint tenancy?
Joint tenancy is another form of concurrent ownership characterized by the right of survivorship. When a joint tenant dies, their interest automatically passes to the surviving joint tenants, not to the heirs.
What are the requirements for a joint tenancy?
To form a joint tenancy, there must be unity of time, title, interest, and possession among the owners. This means they acquire their interests simultaneously, from the same deed or will, share identical interests, and have equal right to the entire property.
Can joint tenancy affect estate planning?
Yes, joint tenancy can bypass probate and may result in fewer legal expenses upon death, but it cannot replace a will and may lead to additional estate taxes.
Can a corporation be a joint tenant?
No, only human beings can be joint tenants because a corporation is a legal entity that does not die, which contravenes the principle of survivorship in joint tenancy.
How is a joint tenancy affected if one tenant sells their share?
If a joint tenant sells their share, the new owner becomes a tenant in common with the remaining owners, unless a new joint tenancy is agreed upon and formed with the new party.
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What is the misconception about joint tenancy and creditor protection?
Some believe that a joint tenancy can protect against creditors’ claims. However, this is only true if the debtor dies before the creditor can seize the debtor’s interest.
What is tenancy by the entirety?
Tenancy by the entirety is a type of property ownership that is reserved for married couples, where the husband and wife are considered a single legal entity. This ownership style adds a fifth unity, the unity of person, to the four traditional unities of joint tenancy.
How does tenancy by the entirety work upon the death of a spouse?
When one spouse dies, the surviving spouse automatically becomes the sole owner of the property.
Can a spouse in a tenancy by the entirety sell or mortgage the property without the other’s consent?
No, neither spouse can sell or mortgage the property without the consent of the other in a tenancy by the entirety.
What are the advantages of tenancy by the entirety?
The advantages include protection from one spouse acting unilaterally in property transactions, some protection from creditors, and automatic right of survivorship.
What are the disadvantages of tenancy by the entirety?
The disadvantages are that it only provides for the surviving spouse, may create estate tax issues, and does not eliminate the need for a will to manage personal property.
What happens to tenancy by the entirety after a divorce?
Upon divorce, tenancy by the entirety automatically converts to a tenancy in common, allowing each ex-spouse to sell their individual interest.
What is the basis of community property systems?
Community property systems are based on laws from Spain and France and treat married couples as equal partners in property acquired during the marriage, with each owning a one-half interest.
What is separate property in community property states?
Separate property includes assets owned before marriage or acquired during marriage by gift, inheritance, or with separate funds, and can be conveyed or mortgaged independently by the owning spouse.
What happens to community property upon divorce or death?
In case of divorce, the courts may divide the property if the couple cannot agree. Upon death without a will, distribution varies by state, with some states giving the deceased’s interest to the surviving spouse and others to descendants.
What is a partnership in the context of real estate?
A partnership is an association of two or more persons who combine their property, labor, and skill in a business to share profits and losses.
What are the types of partnerships?
There are general partnerships, limited partnerships, and joint ventures.
What are general partnerships?
General partnerships are common law entities where each partner shares equal possession for partnership purposes, and their personal assets can be liable for partnership debts.
What are limited partnerships?
Limited partnerships have both general partners, who manage and have full liability, and limited partners, who contribute capital and have limited liability.
What is a limited liability partnership (LLP)?
An LLP is a form of partnership that limits the liability of its general partners for the actions of other partners, protecting their personal assets from partnership liabilities.
What is a joint venture?
A joint venture is a partnership formed for a single business project, treated as a partnership for tax purposes, where members contribute capital or talent.
Should real estate agents advise on how to take title?
No, real estate agents should describe ownership methods but refer buyers to a lawyer for specific title recommendations.
FAQ on Corporations, Trusts, and Other Forms of Property Ownership
What is a corporation in the context of property ownership?
A corporation is a legal entity that can buy, sell, own, and operate property. It’s owned by stockholders who hold shares as evidence of ownership.
What are the tax implications for corporations?
Corporations are subject to income taxes on profits. After-tax profits can be distributed to stockholders as dividends, which are then taxed as personal income, leading to what is known as “double taxation.”
What are the advantages of owning shares in a corporation?
The main advantages are limited liability for investors and liquidity of shares, which can usually be sold quickly through stockbrokers.
What is an S Corporation?
An S Corporation provides liability protection like a corporation but allows profits and losses to pass through to shareholders, avoiding the double taxation typical of C corporations.
What legal cautions are associated with corporations?
Corporations can be subject to “piercing the corporate veil” where individual liability for owners, directors, and shareholders can be found if the corporation is fraudulently created, undercapitalized, or involved in dishonest activities.
What is a trust in property ownership?
A trust is an arrangement where property is transferred from the trustor (owner) to a trustee, who manages it for the benefit of a beneficiary as per the trustor’s instructions.
What are the types of trusts?
The types include inter vivos trusts, which take effect during the creator’s life; testamentary trusts, which take effect after death; land trusts; and real estate investment trusts (REITs).
What is a land trust?
A land trust allows an owner to transfer real property to a trustee for management, converting real property into personal property for legal purposes.
What is a Real Estate Investment Trust (REIT)?
REITs pool investors’ money to purchase real estate and can avoid double taxation if they follow certain IRS rules, like distributing at least 95% of net income to beneficiaries.
What is a Limited Liability Company (LLC)?
An LLC is a flexible form of ownership that offers limited liability to its members and is not classified as a corporation or a partnership.
What is syndication in real estate?
Syndication refers to a group investment in a property venture too large for individuals to fund alone. It can take the form of various ownership structures like tenancies in common, joint tenancies, general or limited partnerships, joint ventures, or corporations.
Should I use these principles to handle my real estate transactions?
While these principles provide a foundation, they are not exhaustive, and each state’s laws vary. It’s crucial to consult with legal counsel for advice tailored to the specifics of your transaction and jurisdiction.
Conclusion
Navigating through the diverse landscape of property ownership types is akin to exploring a complex legal maze, each turn presenting new opportunities and challenges. In this blog post, we’ve journeyed through the intricacies of sole ownership, concurrent ownership, tenancies by the entirety, community property systems, and more. These forms of ownership are not just legal constructs; they are strategic tools that can shape your real estate investment journey.
Sole ownership offers simplicity and autonomy, while concurrent ownership, including tenants in common and joint tenancy, introduces shared rights and responsibilities. Tenancy by the entirety and community property systems reflect the nuances of marital property rights. Corporate and partnership ownership structures bring their unique tax implications and liability issues into play.
Trusts and LLCs offer sophisticated ways of managing and protecting your property assets. Understanding these options empowers you as an investor to make decisions that align with your financial goals and risk tolerance.
Remember, each form of property ownership carries its distinct advantages, responsibilities, and legal implications. As you reflect on this comprehensive overview, consider how these insights can be applied to optimize your real estate portfolio. Real estate is not just about location; it’s about how you hold and manage your investment.
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