The Living Trust: A Better Option to Joint Ownership

Joint ownership of real property is one type of ownership with many benefits, including no probate process if one of the joint owners dies. Common ownership allows owners to share the benefits and responsibilities of owning real estate or real property.

Understanding property ownership is essential for many reasons, including estate planning and avoiding joint property ownership disputes. Whether entering into a business partnership, getting married, or buying a property with someone, carefully determine the best type of ownership for you.

This article explores joint ownership and how a living trust may be a better option.

Understanding Probate

This article explores different types of ownership of property and living trusts. Many of these types of ownership help property owners avoid probate. Probate is the legal process through which a court determines if a will is valid and supervises the distribution of the decedent's assets. A probate court will also hear any challenges to a will.

Probate can be a long, arduous, and complex process. In many cases, probating a will may take years and involve family disputes. If appropriately structured, joint ownership can help avoid many of the pitfalls of the probate process.

Types of Ownership

When anyone purchases a property or real estate, they gain ownership. When two or more people buy real property together, they become co-owners. In co-ownership, the owners have equal rights to possession of the property. For example, one owner cannot unilaterally dispossess (i.e., evict) another owner or bar them from using the property. If the parties agree to sell the property, each party's share of the proceeds of the sale should equal their share of the property.

Several types of ownership are accessible to the parties as they contemplate co-ownership. These include:

• Joint tenancy with a right of survivorship (JTROS)
• Tenancy in common (TIC)
• Tenancy in the entirety (TIE)

Each type of ownership has different characteristics, benefits, and risks. The co-owners should identify the type of ownership in a written agreement to avoid unnecessary risks. The written agreement should indicate each party's responsibilities, such as mortgage payments, maintenance, and upkeep.

Joint ownership is not exclusive to couples. Business partners, entities, and family members can benefit from shared ownership.

Joint Tenancy With a Right of Survivorship

In a joint tenancy with the right of survivorship, each owner has an undivided interest in the property. If there are two property owners, they each have 50% ownership. Three people will each have a roughly 33.33% percentage in the property. Always divide the number of owners by 100 to determine property shares.

The Four Unities

Under real property law, the tenancy must meet the following four unities, or it is invalid.

Those four unities:

• The unity of time: The joint tenants simultaneously take ownership of the property.
• The unity of title: The joint tenants take ownership of the property in the same instrument (i.e., deed or co-ownership agreement).
• The unity of interest: The joint tenants have an equal share or interest in the property.
• The unity of possession: Each joint tenant has an equal right to possession of the property.

Right of Survivorship

Under the right of survivorship, if one of the joint tenants dies, the surviving joint tenant has an ownership right in the entire property. For example, if an unmarried couple holds property in a joint tenancy with the right of survivorship, then when one person dies, the survivor has sole ownership. The deceased tenant's heirs have no right to the property.

Tenancy in Common

A tenancy in common is available to two or more property owners. The ownership interest in a TIC is not always equal. Each co-tenant has a right to enjoy, use, and possess the property. They also have the right to sell their share in the property. After the property sale, the new owner steps into their shoes. When a tenant in common dies, their share becomes a part of their estate. Tenants in common do not have a right of survivorship.

Tenancy in the Entirety

A tenancy in the entirety is a form of ownership specific to married couples. Availability and rules vary from state to state. When a married couple purchases real property, unless the deed states otherwise, they hold the property as tenants in the entirety. They each have 100% interest in the property and cannot transfer this interest to a third party. When one spouse dies, their interest automatically passes to the surviving spouse, avoiding the probate process.

The Living Trust

A living trust is a trust formed while the grantor is alive. In a living trust, the grantor transfers their property to the trust for a beneficiary. The trust becomes the owner of the property, which a trustee manages. The trustee has a legal or fiduciary duty to manage the property for the trust's benefit. Because the grantor transfers their assets or property to the trust, these assets can pass to a beneficiary without probate.

A trust is a written document that identifies the following:

• Purpose of the trust
• Beneficiaries of the trust
• Name of the trustee and their rights and duties
• Trustee compensation
• Asset distribution

There are two types of trusts: a revocable trust and an irrevocable trust. Your needs and desired income should guide the type of trust you choose. For many people, desired outcomes include the protection of assets and the reduction of estate taxes.

Revocable Living Trust

The grantor retains some control over the property in a revocable living trust. One advantage of a revocable living trust is that it protects beneficiaries. For example, if the beneficiary is a minor, that young person is unlikely to manage the property. The trustee of a revocable living trust will manage the property for the beneficiary. Property in a revocable living trust avoids probate when the grantor dies.

A revocable living trust is an attractive alternative for managing assets in business. Consider a real estate investor with multiple properties. In a revocable living trust, the investor (grantor) can transfer ownership to the trust and allow an experienced trustee to manage the trust's assets.

Irrevocable Living Trust

In an irrevocable living trust, the grants give up all control over and ownership of the property. For example, the grantor can be the trustee in a revocable trust, thus maintaining some control over the property. The benefits of an irrevocable trust include protecting your assets from creditors and reducing your estate's tax liability.

Get Help

Each method of joint ownership of property has advantages and disadvantages. A real estate lawyer will help you understand your legal rights and obligations for different types of property ownership. They can also provide legal advice for any potential joint ownership disputes.