The Importance of Properly Titled Deeds In Estate Planning
By Matthew A. Ferri, Esq. Estate planning is a critical process that ensures the smooth transfer of assets and property to your chosen beneficiaries after your passing. One vital aspect of estate planning is the proper titling of your deed. The way you hold title to your property can have significant implications for its management, transfer, and tax consequences.
Risks of DIY Deeds
Your home or other real estate is too valuable to risk by reusing old deeds or using cheap or free downloadable deed forms. The financial harm from using the wrong type of deed, or filling in the information incorrectly, can be significant. The property may not transfer how you want, when you want, or to whom you want, if done incorrectly. An incorrect deed can also cause an unnecessary property tax increase. In Michigan, property taxes increase each time a property is transferred, unless certain deeds are used, or other exclusions apply. If done incorrectly, the government typically does not allow you to correct it.
What is A Deed
Before delving into the different forms of property ownership, it’s essential to understand the concept of a deed. A deed is a legal document that establishes ownership of a property and outlines the rights and interests associated with it. When you purchase a property, the deed is typically transferred to your name.
Forms of Property Ownership
Sole ownership is when a property is owned by a single individual. In this case, the person has complete control over the property and can transfer ownership through their trust, will or other estate planning documents. However, if the owner passes away without a valid estate plan, the property may be subject to probate court and intestate succession laws.
Tenancy in Common:
Tenancy in common is a form of joint ownership where two or more individuals hold a fractional interest in a property. Each co-owner has the right to sell, transfer, or bequeath their share to their chosen beneficiaries. If one co-owner passes away, their share is transferred to their heirs or beneficiaries, rather than the surviving co-owners. If you are a Tenant in Common and the other owner dies, you will have no control over who your new co-owner will be. It will be determined either by their estate plan or by probate if they had no plan.
Joint Tenancy with Right of Survivorship (JTWROS):
Another form of joint ownership. In this case, co-owners have an equal share in the property, and when one owner passes away, their share automatically transfers to the surviving owner(s) outside of the probate process. JTWROS offers the benefit of avoiding probate and ensuring a seamless transfer of ownership.
Tenancy by the Entirety:
Tenancy by the entirety is a form of ownership exclusively available to married couples. Similar to joint tenancy, this form of ownership provides a right of survivorship. If one spouse passes away, the surviving spouse automatically inherits the entire property, bypassing probate.
If you know exactly who you want to give the property to and you are comfortable giving up the right to sell, then a Life Estate might be an option. With a Life Estate, you transfer the property while you are alive and avoid probate. However, you retain for yourself the right to live on and use the property for the rest of your life. There is even a variation called an enhanced life estate deed. It would allow you to still profit from the land or even sell it during your lifetime.
Considerations for Estate Planning Deeds
Properly titling deeds is crucial in estate planning as it directly affects the transfer and distribution of property upon your passing. Here are a few key considerations:
- Probate Avoidance: By using joint ownership forms like JTWROS or tenancy by the entirety, or creating certain deeds, you can help your beneficiaries avoid the probate process. This saves time, money, and provides a faster transfer of property to the intended recipients. However, if the owners don’t die in the proper order, then the wrong person could get the property. Another problem is that there is no divorce or creditor protection for the last individual owner. A divorce in the same year you become the sole owner, could mean your ex-spouse gets the family farm.
- Control and Flexibility: Different forms of property ownership offer varying degrees of control and flexibility. Consider your specific circumstances and goals when deciding on the appropriate form of ownership. For example, if you wish to maintain control over your property during your lifetime but ensure a smooth transfer upon your passing, a revocable living trust might be a suitable option.
- Tax Implications: The choice of property ownership can impact tax consequences. Consulting with a tax professional or estate planning attorney can help you understand the potential tax implications associated with different forms of property ownership.
Your Deed Is A Crucial Part of Your Estate Plan
Properly titling deeds is a crucial aspect of estate planning. It can significantly impact the transfer and management of your property. By understanding the different forms of property ownership and considering your goals and circumstances, you can make informed decisions to ensure the smooth transition of assets to your chosen beneficiaries.
About the Author
Matthew A. Ferri, J.D., M.B.A., is the Founder and Principal of Life Focus Planning, a Michigan based estate planning law firm. He is an estate planning attorney with offices in Bloomfield Hills, Michigan and Shelby Township, Michigan. His expertise includes advanced estate planning, elder law, Medicaid planning, Veterans benefits, special needs planning, and business planning. During law school, Matt focused his studies on business law while simultaneously earning his MBA. After graduation, Matt started his own firm with the goal of helping individuals and their families develop estate plans that work. He received the rating of AV Preeminent® by Martindale-Hubbell: The highest peer rating standard. This rating signifies that a large number of his peers rank him at the highest level of professional excellence for his legal knowledge.