One of the most frequently asked questions Trusli receives is how two people can hold title to a piece of property. People are curious about the respective pros and cons, as well as the recommended property ownership methods. Due to the complexities behind each individual’s legal ramifications, different types of real estate ownership vary. Therefore, it is essential to know the differences between each one before making the decision to own property with someone. To help you understand better, We wrote this article as well as created the chart below to explain the complexities of property ownership.
1. Sole Ownership
Sole ownership, in layman’s terms, means when one person owns a property. Legally, this person is allowed to deal with the property as they see fit, without any permission from another entity. More specifically, as shown in Figure 1 below, sole ownership gives you the right of possession, exclusion, control, the ability to derive income, and disposition. This will be the cleanest and most effective way to own real estate. However, there are some disadvantages that come with sole ownership. Figure 1 explained that you could not transfer the ownership through a will. For the property owner’s heir to get the title, the heir will need to go through the expensive and time-consuming process of probating the property.
2. Joint Tenancy
Joint tenancy means two or more people (who are not a wedded couple) own a property together as co-owners. Figure 1 shows that in this type of ownership if one of the owners passes away, their share of the property remains; it can not be passed on, such as survivorship.
Unlike other ownership, you need the following four key components to create a joint tenancy:
- Time. The owners must purchase the property at the same time.
- Title. All the owners’ names must be stated in one contract.
- Interest. The estate needs to be divided equally amongst all owners. If two people own the property, they each have 50% interest.
- Property Rights. All the owners should hold equal rights to the usage of the estate and equal rights of possession.
Although joint tenancy benefits owners with equal rights, there are still downsides to this type of ownership. For example, if you and a friend are co-owning the estate, but your friend has unpaid debts. Then the creditor is entitled to force the sale of the property legally. However, if the sale is finalized, both parties must agree on the sale. Moreover, equal rights also mean all owners must agree on everything regarding the property, and all parties are responsible for any damages and maintenance of the estate.
3. Tenants In Common
Tenants in common happen when two or more people separately own a proportion of a real estate. One disadvantage of this type of ownership is that it allows the property to be divided unequally, which means equal use does not apply. Yet, unless the deed is stated otherwise, the court will assume the estate is divided equally.
Yet, unlike joint tenancy or tenancy by entirety (“TBE”), survivorship does not apply to tenants in common. For instance, if you and your friend own the property together, you own the ⅓ of the home, but your friend owns ⅔ of the estate. However, you decided to sell your portion of the property, and your friend still owns their portion without the need to sell.
4. Tenancy By Entirety (TBE)
Unlike joint tenancy, this type of ownership is only permitted between married couples. Each owner owns equal rights and 100% interest in the estate. In TBE, the couple is viewed as one entirety, whereas in joint tenancy, each party is considered a legal entity. When one spouse passes away, the other spouse gets the ownership fully without needing probate.
Community property states a piece of property may be considered to be community property (depending on when it's acquired) by virtue of marriage. We don't want to get into the community property topic here today.
Many awesome resources exist online that explain the differences and the pros and cons really well. See Investopedia or this article on moneycrashers.com. For our love of graphics and simplicity, we created this chart below. We simplified the categories into a chart; we hope to help you wrap your head around the nuances of the various types of property ownership.
Hopefully, this gives you a clear and crisp understanding of the various aspects of different property ownership types. The differences relate to finances, inheritance, relationship to marriage, etc. Note this is not legal advice. For more questions about this, please contact a real property lawyer and/or a trust or estate lawyer, if applicable.
*The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only.