At a time of record home unaffordability, more people are teaming up with friends and relatives to realize the home ownership dream. Purchasing a property with other people can help a buyer to lower their individual costs while building equity.
However, going in on a house together can also create trouble spots, including survivorship and inheritance issues. When buying a home with another person, the co-owners must decide how to hold the title so that it aligns with their wealth-building and estate planning goals.
Co-Ownership and Home Titles:
Typically, co-owners are not only listed together on the mortgage loan, but on the home title. Having more than one person on the title raises estate planning issues that may not immediately arise but should be thought about.
Property can be titled in different ways. Common ways of joint ownership titling include tenants in common, joint tenants with right of survivorship, and tenants by the entirety
Tenants in common: With this type of title, property shares may or may not be divided equally between owners. Each owner’s share might be equal to their investment in the property or the shares may be divided equally among the owners. However, the co-owners still have equal rights to use all areas of the property. They can also choose who receives their interest when they die; it does not automatically pass to the other owner(s).
Joint tenants with right of survivorship: Under this arrangement, each owner has an undivided interest in the property. They own the property in equal shares and have the right to use the property however they wish. The right of survivorship means that, when one of the joint owners dies, their property interest passes to the surviving joint owner(s).
Tenancy by the entirety: This title option works the same way as joint tenants with Right of Survivorship but is only available to married couples in certain states. It also provides valuable creditor protection because property owned in this way is not subject to the creditors of just one spouse.
For those who already own a house, how the property is titled is no less important to their estate plan. Circumstances change. The original title terms may no longer reflect a person’s current priorities. While changing a joint tenancy may not always be possible or practical, at the very least, a person should know how a home title affects their property rights, the rights of any heirs, and tax obligations.
Choosing how to title a co-owned home, and how this choice fits into your estate plan, depends on the people and property involved, your estate planning goals, and state laws where the property is located. I can help explain the pros, cons, and consequences of each type of joint ownership to help you decide which one best fits your situation.