You have decided to buy your first home, that beautiful piece of land, or the rental property you have thought about for years. You have the funds, that milestone is complete. Unfortunately, at this point, many buyers do not know how to take title of their property. Your real estate agent may drop a few hints, but if pressured to assist, most will tell you that they cannot tell you how to hold title as doing so would be the unauthorized practice of law.
Closings can be rushed or time sensitive to say the least, and if you are lucky, you might happen to notice the deed to your home in the mound of paperwork in front of you. You may see how you will hold property moving forward, but not really recall how that decision was reached. Sometimes what you see may not seem ideal or confusing, but you sign the document and move on.
If the story above sounds like something familiar to you, then you may need to retitle your property. Many people don’t know how to do this, or worse, they do not know the correct way to retitle their property. At this point, you should reach out to an attorney who can review the following:
1) Do you hold property with others?
2) What is the purpose behind this purchase, is it a long term or short term investment?
3) Do you need to protect this property from creditor claims or lawsuits moving forward?
4) Would you like to make sure your loved ones take this property when you pass?
In Nevada, the most common forms of ownership include: sole ownership as a single or married person,joint tenants in common, joint tenancy with rights of survivorship, community property and community property with rights of survivorship. All have unique features that are tailored for various needs and purposes.
You may also hold real property in a trust or the under the name of a business entity.
Lastly, you may also use your deed to grant certain rights to individuals, entities, or trusts over time. These are called life estates or future interests and may be a strategic way to plan for transfer of the property over time without taking on complex estate planning, especially if the real property is the only real asset you own.
Please take a moment to review several common ways to hold property here in Nevada. If you need to revise your current deed on file, please feel free to contact our office and let us assist you with conveying your property in a manner that truly meets your short or long term needs.
1. Sole Ownership
If you are single or married, one way to hold title to your home is in your name alone. This method is also called ownership in severalty. A married person can also take title to real property in his or her name alone in sole, the spouse is usually asked to sign a quitclaim deed giving up any ownership interest in the property.
There is no special tax or other advantages of holding title in sole ownership. When the sole owner dies, any property held this way is subject to probate court costs and delays.
2. Joints Tenants in Common
When two or more co-owners take title to real estate, especially if they are not married to each other, they often become tenants in common. For example, two business investors might select this method.
Each tenant in common owns a determined interest in the property. It need not be equal. One owner might be vested with 60% interest; another could own a 40% interest. The interest owned is written on the deed.
A major advantage is that each tenant in common can sell or pass his or her interest by will to whomever he or she wishes. This form of ownership is common in second marriages, so each spouse can will his or her share to the children from a first marriage. Tenancy in common property is subject to probate court costs and delays.
Some disadvantages are that a tenant in common can bring a partition lawsuit to force a property sale if the other co-owners are unwilling to sell. The court can then order the property sold, with the proceeds split among the co-owners according to their ownership shares. Additionally, a tenant in common could wind up co-owning property with a stranger. These two disadvantages may also happen under joint tenancy with a right of survivorship below.
3. Joint tenancy with Right of Survivorship
When title is held in joint tenancy with right of survivorship, all co-owners must take title at the same time; they own equal shares and the surviving co-owner winds up owning the entire property. After a joint tenant dies, the surviving joint tenant(s) receives the deceased’s share. The deceased’s will has no effect on joint tenancy property.
A major advantage is that probate costs and delays are avoided when a joint tenant dies. The surviving joint tenant(s) usually needs only record an affidavit of survivorship and a certified copy of the death certificate to clear the title.
A major disadvantage is that a joint tenant can sell or give his property interest to a new owner without permission of the other joint tenant(s). However, in Nevada this may not be the case if a valid Homestead Exemption has been filed by both parties.
If there are only two joint tenants, the joint tenancy is ended by such a conveyance, creating a tenancy in common.
4. Community Property
Husbands and wives who acquire real property in community property states (California, Nevada, Louisiana, Wisconsin, Texas, Arizona, Washington, Idaho and New Mexico) can take title as community property. Each spouse then owns half the property, which can be passed by the spouse’s will either to the surviving spouse or someone else. Some states, like Nevada, allow married parties to also take title in community property with rights of survivorship as well. Meaning their interest passes upon death to the remaining spouse.
A special advantage is that community property assets willed to a surviving spouse receive a new stepped-up basis at market value on the date of death. In 1987, the IRS extended this community property stepped-up basis advantage to husbands and wives holding joint tenancy titles in community property states. To qualify, IRS Revenue Ruling 87-98 requires spouses to acknowledge in writing to each other that their joint tenancy property is also community property.
5. Living Trust
Probably the best way to hold title to homes and other real property is in a revocable living trust. There are many advantages, such as avoidance of probate costs, delays, and privacy.
Other than the modest cost of creating a living trust and deeding real property into the living trust, there are no disadvantages. Until the death or disability of the trust creator, the home and other real estate in the living trust are treated the same as any property holder of record. Using a living, revocable trust, these assets can be bought, sold and financed normally. If the trustee should pass away or become unable to manage his or her affairs, the assets are distributed and/or managed according to the trust’s terms.
Privacy is a major advantage. Unlike a will, which becomes part of the public probate file, the living trust terms remain private.
6. Business Entity
The best business structures in which real property can be held are limited liability companies (LLCs) and/or limited partnerships (LPs). Both offer flow-through income and taxation opportunities, and both offer excellent asset protection.
In Nevada, for example, legislation prohibits creditors of these entities from directly seizing assets of either type of entity. Instead, judgment creditors must secure their judgment against the entities by way of the charging order procedure. Having a charging order placed against an LLC or a limited partnership in many states does not convey voting rights, so creditors cannot take control of the entity and, through that control, reach the assets.
In Nevada, these entities are also attractive for property owners whose equity in the home might exceed $550K; the maximum amount of equity that may be protected under Nevada’s Homestead exemption law.
The LLC provides for limited liability for all owners (members) whereas an LP only has limited liability for the limited partner. The general partner of an LP would have full liability. This can be easily overcome by forming a second corporation or LLC to serve as the general partner and is often used in other jurisdictions. In Nevada; a simple LLC is typically the entity of choice.
7. Life Estates and Future Interests
Life estates can be used to avoid probate, maximize tax benefits, and protect the real property from potential long-term care expenses you may incur in your later years. Transferring property into a life estate avoids some of the disadvantages of making an outright gift of property to your heirs.
Life estates establish two different categories of property owners: the current owner called the “Life Tenant” and the future owner called the “Remainder Owner”. The life tenant maintains the absolute and exclusive right to use the property during his or her lifetime with the remainder owner(s) having no right to use the property or collect income generated by the property, and is/are not responsible for taxes, insurance or maintenance, as long as the life tenant is still alive.