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Property Rights --Part
VIII
Depending on the state in which you live, there are different rules governing property rights. Regardless, "how" you own your property (alone, joint, or other) will determine whether you can implement a good estate plan to save taxes on your estate. Simply changing the legal titles of your properties can ensure thousands in tax savings and aggravation. Additionally, in case of death or divorce, how you hold your property today is essential to determining future ownership. The five basic ways to designate property ownership are:
- Joint tenancy with right of survivorship
- Tenancy by the entirety
- Community property
- Tenants in common
- Individually owned property
Joint tenancy with right of survivorship
If you hold your assets in Joint Tenancy with Right of Survivorship, the property is "jointly" owned with another person. This other person can be anyone: a spouse, child, or significant other.
Your will does not control who receives an asset held in Joint Tenancy with Right of Survivorship; the property will always automatically go to the surviving joint tenant.
For example, let's say you hold a brokerage account in joint tenancy with your partner. Even if your will says that half of the account should go to your partner and the other half to your children, the entire brokerage account will go to your partner because you held it Joint Tenancy with Right of Survivorship.
Tenancy by the entirety
This is a Joint Tenancy with Right of Survivorship (the surviving party automatically receives the property) - but only when the property is held by a partner and a wife. In most states, assets held by Tenancy by the Entirety cannot be taken by a creditor of one spouse. This is the benefit of Tenancy by the Entirety over joint Tenancy with Right of Survivorship - in this case, the property is protected from creditors.
Community property
(Only applies in states that have enacted community property laws: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Alaska and Wisconsin)
Regardless of how title to the property is held, almost all property acquired by you or your spouse is treated as owned by both and considered community property. Thus, even if property is held only in your partner's name, you own half of it. Exceptions include inherited or gifted property and any property you held prior to the marriage. To avoid these laws, you can sign a prenuptial or postnuptial agreement.
Tenants in common
Tenants in common refers to a situation where any two people (such as a husband and wife) co-own their property.
If one spouse dies, the property does not immediately pass to the other spouse. Instead, the property passes through probate court and the deceased's will controls who will receive the property. Unlike most Tenancy by the Entirety property, your share of the property, held by you as Tenants in Common, can be taken by your creditors.
Individually owned property
Individually owned property is property that is owned by one person alone. When the owner dies, the property passes through probate and the deceased's will controls whom will receive the property. Property is available for the deceased's creditors as needed.
Continue to: Part IX: Retirement planning
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