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.
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.
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.
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 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.
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 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.
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:
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.