How Should You Hold Title to Your Home?

The manner in which title will be held, also known as “title vesting,” refers to your legal rights to your home. Different vesting methods — like sole ownership, joint tenancy or tenancy in common — affect your right to sell or refinance the home today and what will happen to the house if you die tomorrow.

It can be easy to gloss over these legal details as you prepare to buy a house, but understanding your vesting method can help you and your beneficiaries avoid legal and tax issues later.

What is a property title?

Contrary to popular belief, the title isn’t a document. It’s a package of rights that a homeowner enjoys — in legal terms, “title” simply means ownership.

Property title is ownership over property, and it gives you the right to use the property as you wish. Once you hold title, you can make changes to the home or transfer some or all of your ownership (also known as your “interest”) to someone else.

The manner in which you hold title also creates a road map for the future, for example, what happens to the property after you die.

What rights does legal ownership give me?

These rights include:

• Possessing, using, enjoying and maintaining the home
• Renting out or transferring the property
• Limiting who can use or occupy it

Deed vs. title

As mentioned above, title refers to legal ownership. In the case of a house, this ownership is typically documented in a deed.

A deed is a legal document that transfers ownership from one person to another. You sign a deed to take title in your name from the seller when you buy a home. Once the signed deed is recorded with your local courthouse or assessor’s office, you become the official owner and hold title to the home.

What is ‘title vesting’?

Vesting is the legal term for finalizing and securing your rights. Thus, title vesting is the process of securing your ownership rights to the property. You’ll have ownership of your home no matter what, but different methods of title vesting determine how that ownership will function going forward.

Why title vesting is important

Your vesting method, or how you hold title, determines if the property passes to designated heirs, surviving joint owners or goes through probate. Title vesting affects:

• What happens with the property after your death
  Whether you want your home to go to your spouse or a future great-grandchild, title vesting provides guidance to survivors about what should happen to the property after you pass.
• Who profits from the home sale after your death
  If you want your home sold after you die, the sale proceeds will be divided, in part, based on how you held title at your death. If you have a trust or a will, you can allocate a certain percentage of funds to different family members.
• Who gets tax benefits if a co-owner dies
  This is often an issue with tenancy in common title vesting (explained in the next section), where title and interest in the property can be divided unevenly. If you don’t outline the details clearly, your heirs could end up in court over who gets which ownership benefits.
• Who can avoid probate
  One overall goal of choosing ownership vesting is to avoid probate, which involves a court deciding how to transfer ownership after the current owners die. To avoid probate, it’s important to either give heirs with rights of survivorship title before you die or prepare a trust outlining your last wishes.

5 different types of title vesting

1. Joint tenancy with right of survivorship (JTWROS)

This is often considered the best title vesting for most married couples, but it also applies to family members planning to own a property together. Joint tenancy with rights of survivorship gives each owner equal ownership rights that automatically pass on to the surviving owners when one owner dies.

When you hold property title with someone with the right of survivorship, you must divide up the ownership equally. Under this type of vesting, the owners don’t have to be married, and any number of people can own the property together.

2. Community property with right of survivorship

This type of vesting is available only to married couples. It’s very important to disclose your marital status because you could be forced to give up property rights to a spouse in divorce court if you buy property without disclosing that you are married.

Marital status disclosure is especially important if you live in one of the nine community property states in the U.S.:

In these states, community property laws can determine how real estate is divided in the event of a divorce.

3. Tenancy in common

Tenancy in common allows you to divide up the ownership interest unequally, and any number of people can hold title. You can negotiate how much interest you have based on the criteria you set.

You’ll need to decide who gets the tax benefits of ownership and divvy up who pays what percentage of the annual property tax bill. Your local treasurer’s office won’t divide property tax bills like a restaurant check, and the IRS usually doesn’t get involved in deciding who gets the tax write-offs related to homeownership.

When a tenant in common dies, property rights don’t automatically go to the other owners, as they do with a joint tenancy with right of survivorship. Instead, the rights pass on to the deceased owner’s heirs or to a probate court if there’s no will. That’s why it’s important to create a will after buying a home.

4. Sole ownership

This is exactly what it sounds like: One person owns all rights, title and interest to the property. A married person can hold title as “sole and separate” from a spouse, meaning the spouse doesn’t lay claim to ownership of the property.

If the sole owner dies, the property is passed on to the heirs listed in a will. If there’s no will, a probate court determines how the property is transferred.

5. Living trust

A trust outlines what happens to the interest in the property if one trustor dies. Lenders require proof that the trust doesn’t contain provisions that could affect their ability to foreclose on your home if you default on your mortgage.

Having a living trust clearly defines your intentions for what happens to your real estate after you die. While title vesting gives an indication of your wishes, a living trust provides clear, specific instructions to avoid confusion among heirs about handling property rights upon your death.

What is a revocable trust?

The term “revocable” tells lenders you can amend or revoke the trust while you’re alive, which means you have full control over the assets included in the trust — in this case, your home. With an irrevocable trust, someone else controls the trust, which means lenders can’t foreclose on a mortgage if you default. Mortgage lenders generally only allow title to be held in a revocable trust.

Pros and cons of different title vesting types

Once you know the common methods of holding title, it’s time to choose the type of title vesting you want to use. The table below summarizes the pros and cons of each title option.