How to Hold Title (Vesting) to Real Estate? Choosing the Best Method for YOUR Situation will have an Enormous Effect on the Legal Liability, Tax Implication and how it Passes to Your Heirs!!!

Disclaimer: I am not a Lawyer, Probate Expert, Estate Planer or Tax Adviser and I do not guarantee the accuracy of these claims. I do guarantee that choosing the WRONG method for what you intend to happen with your Real Estate will be painful. Reading this will help!!

Selecting the best method of “Holding Title” (Vesting) takes place when BUYING the Property, when you are in Escrow to purchase!

There are 8 methods of Holding Title:

  • Sole Ownership: The only option for a Single Person (unmarried, and no one else is buying with you). Then transfer to your Living Trust. If you are married and want sole ownership, the other person Must Sign a Quit Claim or Interspousal Transfer Deed, while In Escrow. Then, transfer the Property to your Living Trust, as Sole Ownership.
    Consult with your Tax adviser regarding Capital Gains when comparing Owner Occupied to Non-Owner Occupied (a renter lives there).
  • Tenants In Common: This option is for More Than One Buyer, who are not married to each other. Usually considered, as Investors, more than one.
    The split is determined by the amount each person invests and pays in costs (Insurance, HOA, Taxes, etc.). If One person invests 50% and pays 50% of costs, then that owner owns Half. The Second person invests 25% and pays 25% of costs, then that person owns 25%. The 3rd person will also invest, pay and own 25%
    Upon death, Each owner has the right to give their share to heirs or whomever they choose. Also, each owner has the right to put their share into individual Living Trust.
    Consult with your Tax adviser regarding Capital Gains as it relates to comparing Owner Occupied to Non-Owner Occupied (a renter lives there)..
  • Joint Tenants: Most common form of holding Title for more than one Buyer. Most advisors do not recommend this method to Buyers that are Married. I’ll explain why.
    OK, this option is for More Than One Buyer who are married or unmarried.
    Upon Death, the share of the Deceased is Automatically Transferred to the Surviving Owner(s) i.e. Spouse, Investor or whomever is on the Grant Deed, ONLY. Upon death it cannot be given to anyone else other than those on the Grant Deed. Only the last Surviving party can Transfer the Property. Putting the Property in Trust while other parties are on the Grant Deed makes no sense, because the Transfer is Automatic to the other surviving owners.
    Here’s another scenario. If the Surviving Spouse or Last Surviving Buyer adds an Heir, Lover or Institution to the Grant Deed as Joint Tenant, who does not live there, as Primary Residence, then that Property becomes a Second Home, too the Heir or whomever is added to the Grant Deed. The Implication here is, a Second Home is subject to Sale if a Bankruptcy, Creditor Lawsuit, Taxes Owed or any Lawsuit requiring a Settlement be paid by the added Tenant.
    Also, the Step Up Basis, which refers to the amount of Capitals Gains incurred by the Surviving Spouse or other Buyers can be significantly higher than other forms of Title.
    Consult your Tax adviser regarding Capital Gains as it relates to Step Up Basis for the Surviving Spouse or Other Owners of Joint Tenants Title.
  • Community Property: This option is for Married Couples Only. Each Spouse has the right to Will (give) their share (½) too anyone, strangers, relatives, institutions, etc.
    It’s possible for the Surviving Spouse to pay 0 in Capital Gains, upon the sale. Also, it can be placed in a Living Trust.
    Consult your Tax adviser regarding Capital Gains as it relates to Double Step Up Basis for the Surviving Spouse.
  • Community Property with the Right of Survivorship: This option is for Married Couples Only. When one Spouse dies the Surviving Spouse Automatically receives the other half of the property. It’s possible for the Surviving Spouse to pay 0 in Capital Gains, upon the sale. Also, it can be placed in a Living Trust.
    Consult your Tax adviser regarding Capital Gains as it relates to Double Step Up Basis for the Surviving Spouse.
  • LLC or Corporation: If you own an LLC or Corporation, this method may be beneficial to you. Be sure to Assign the Property to your Living Trust. These methods have more complicated Tax implications but are desirable to savvy Real Estate owners.
    Consult your Tax adviser regarding the use of an LLC or Corporation as the Owner of your Real Estate.
  • Revocable Transfer on Death: This method is somewhat new, since 2016. There may be Title Insurance complications upon the death of owners. Consult with your Financial Planner and Tax Adviser.
  • Living Trust: It’s best to create a Living Trust before purchasing your next Property, but you can create a Living Trust after the Purchase and then transfer the Property. This method is probably the most beneficial method of Vesting/Holding Title. A lot of details can be outlined in the Living Trust and Capital Gains can be Significantly Reduced when sold.

Foot Note:

If you are planning to Sell your current Home and Buying another Property that you Plan to Rent, look into a 1031 Exchange. Read My Investors Tab on 1031 Exchange.