Ways to Leave Real Estate to Multiple People

Ways to Leave Real Estate to Multiple People

Owning real estate continues to be a very popular investment vehicle for individuals and couples alike. It is important to understand that real estate can be owned in several ways, each of which has important legal consequences when it comes to leaving that real estate to your loved ones upon your death. In some cases, you may want to transfer your real estate to more than one person at your death. How does that work?

For example, suppose you have a treasured family cabin that you and your adult children have all enjoyed for years. You may want to leave the cabin to the children in equal shares so they can continue enjoying it throughout their lives. It is crucial, however, that you carefully consider the various options for joint ownership before you decide how to pass it to them.

The two mains ways are Tenancy in Common and Joint Tenancy.

Tenancy in Common is a frequently used option for joint ownership among individuals who are not related by marriage. This type of real estate ownership allows each joint owner to access and enjoy use of the entire property even though they may own only a fraction of it. However, if a joint owner dies, that person’s share will pass to their own heirs or beneficiaries rather than to the other joint owners. In the cabin example above, all the decedent’s children would have equal access and right to use the family cabin. They would also bear equal responsibility for maintaining the property and sharing in any liabilities associated with the property, such as property taxes. And ultimately, any co-owner could sell or pass on their share in the property in whatever way was in their own best interest.

Joint Tenancy is another form of joint ownership that, similar to tenancy in common, allows all joint owners the legal right to use and enjoy the entire property. Joint tenancy differs from tenancy in common primarily in that, when a joint tenant dies, that tenant’s interest in the property legally passes to the other joint tenants.

In the cabin example, the siblings who inherited the cabin property as joint tenants could use and enjoy the property (and share in its maintenance and liabilities throughout their lives, but as soon as one of them dies, that person’s share of the property would pass to all the other joint owners, with the last joint owner to die receiving the entire property to gift or pass to anyone in any way. This situation may or may not be desirable, depending on the family dynamics. While it may be perfect for some situations, this right of survivorship can unfairly favor the youngest or naturally healthiest individual among the group of joint tenants.

It is also important to understand that a joint tenancy can be severed by any joint tenant through the sale or transfer of that individual’s joint interest without the consent of the other joint tenants, leading to confusion and animosity among the joint tenants if expectations are not clearly set and agreed to from the beginning.

Tenancy in the entirety is a form of joint ownership available only to married couples, but it is not available in every state. Where it is available, however, it can be a very useful method of joint ownership. It is very similar to joint tenancy with rights of survivorship in that, upon the death of one joint owner, the other joint owner automatically receives ownership of the entire interest in the property. However, unlike joint tenancy, tenancy in the entirety prevents one of the joint owners from unilaterally severing the joint ownership.

This feature can be particularly useful when one of the joint owners is sued, because tenancy by the entirety provides unique creditor protections to the other joint owner. When one of the joint owners is sued by a creditor attempting to foreclose on the property, the creditor will typically be prevented from foreclosing, because the other joint owner’s interest in the entire property cannot be involuntarily subjected to the creditors of the defendant joint owner.

The discussion above is only an introduction to the variety of methods that real estate can be transferred to and owned by individuals. Transferring real estate to your loved ones does not have to be a one-size-fits-all approach. You can create a highly customized method for passing on your valuable real estate in a way that best aligns with your individual circumstances and estate planning goals.

And while the variety of options available can be overwhelming at first, I am here to help you every step of the way! You can reach me at (480) 719-7333.