Over the course of your lifetime, you will likely co-own property at least once. You might jointly own property with a spouse, an adult child, or even a business partner. It’s important that you understand how this works. The Mendel Law Firm, L.P. set out to explain why the type of joint ownership you choose matters.
Why Does It Matter How Property Is Titled?
The manner in which jointly held property is titled is not something most people think much about – but they should. The type of joint title you choose could impact your own rights to the property. Furthermore, it can also potentially subject your interest to the property to unnecessary risks. In most states, title takes precedence over other transfer methods. This means that if there is a conflict between a gift made in a Will and the manner in which property is titled, the title wins.
Types of Joint Ownership of Real Property in Texas
Joint ownership of real property is governed by state law. This means each state decides what types of joint ownership will be recognized within the state. At the time you purchase real property with an additional owner, you should be asked which type of joint title you plan to use. Never rely on the title company to create the right type of ownership. They typically only prepare the most simplistic deed/title. This may not reflect the manner in which you plan to hold the property. The types of joint ownership recognized by the State of Texas include Tenancy in Common and Joint Tenancy with Rights of Survivorship.
Tenancy in Common
Tenancy in common is the default type of joint ownership in most states. This includes Texas. In other words, if the ownership instrument is silent with regard to the type of joint ownership, the law will presume you hold it as tenants in common. With a tenancy in common, each owner owns a separate fractional share of undivided property. In addition, there is no limit to the number of owners. Furthermore, owners can own differing shares of the property. For example, you might own property with your two adult children. You could own 50 percent of the property and they each own 25 percent.
As a tenant in common you can sell, mortgage, transfer, or assign your share of the property; all of this can be done without the consent of the other owners. Additionally, your interest in the property will become part of your probate estate after your death. Both of these features can put your interest in the property at risk.
Joint Tenancy with Rights of Survivorship
Property can be held as joint tenants with or without rights of survivorship. In Texas, the title instrument must specifically state that rights of survivorship exist. Usually, the most important benefit to holding property as joint tenants with rights of survivorship (JTWRS) is that your interest in the property does not become part of your probate estate after your death. Instead, your interest passes automatically to the surviving owner(s) outside of the probate process.
Along with making it much easier to pass your ownership interest to loved ones, this feature also means the value of your interest in the property is not included for federal gift and estate tax purposes. However, there are downsides to holding property as JTWRS. One is that an owner cannot sell, transfer, mortgage, or otherwise encumber the property without the consent of the other owner(s). Another disadvantage is that creditors of one owner can still reach the property to pay off debts of another owner.
Contact Houston Estate Planning Attorneys About Joint Ownership
If you have additional questions about the best type of joint ownership for your situation, contact the experienced Houston estate planning attorneys at The Mendel Law Firm, L.P. by calling 281-759-3213 to schedule a consultation.