Ownership sounds simple, and in some ways it is, but when insurance, inheritance, disputes, and ownership rights get involved, how things are owned matter a great deal.
One classification on a piece of paper could mean someone being left with everything, and someone else being left with nothing. Or vice versa.
Also… ownership is a big and complex topic. There is no way a few thousand words can capture the complexity of titling and ownership, but what this blog will do is outline how titling and ownership work, give you specific definitions for each major type, and at least help you understand what type may be best for you / give you broad insight into the pros and cons of each.
First, a few quick thoughts to get us started:
- There is no “right” ownership type — each has their own advantages and disadvantages.
- Ownership types don’t really matter UNTIL a death, divorce, or sale. Then they matter a ton.
- The types of allowed ownerships can change depending on the state you’re in, so state and local laws can affect your ideal choice.
- Executors need to figure out how certain assets are owned and organize/distribute them appropriately.
Second, I have a bone to pick. The number of real estate professionals who confuse title and deed is not okay.
Let’s settle the difference once and for all:
The Difference Between a Title and a Deed
A title isn’t a document. It’s just an intangible collection of rights involving “real property”.
So when you have title to a home, you can choose who can enter, what you want to do with it, and so on. It gives you both a claim to a property via the deed and ownership rights.
A deed is the physical document that transfers legal ownership, and therefore title between properties.
They can look like all sorts of things, but here’s one from TN:
When you buy a house, the seller will sign the deed over to you, and then it’s filed with the appropriate government office for your county, proving you now have title.
Title = the bundle of rights you have when you own a home
Deed = proof you have those rights.
What a Title’s Bundle of Rights Are in Real Estate Ownership
Holding a title gives you a bundle of rights, depending on the stipulations outlined in the deed and the type of ownership. These aren’t absolute rights, but they are rights.
Owners typically get:
- Right of Possession, a.k.a. It’s yours! You own it.
- Right of Control — it’s yours to use and make changes how you wish.
- Right of Enjoyment — throw a rager or have a classy dinner? Your use is your call.
- Right of Disposition — meaning you can sell, rent, transfer ownership, whatever.
- Right of Exclusion — don’t want Sarah from Accounting over? That’s your right.
Now, the reason I said not absolute is that some things can push back on these. For example, a search warrant pushes against your right of exclusion, and HOA fees or liens put limits on your right of control.
Title vs. Ownership Types
So if a deed gives title, and a title gives rights, where do things like “sole ownership”, “joint tenancy”, and all those other types of ownership we’re about to cover fit in?
Ownership types shape the rights your title gives you.
If your title is that intangible stack of rights, ownership types affect to what extent you can use those rights, who must be in agreement to exercise those rights, and may put other requirements or restrictions on them.
For example, in tenancy of entirety agreements, spouses have to sign off on a sale of the property, which puts a restriction on an owner’s right of disposition.
5 Big Types of Real Estate Ownership You Need to Know
Now that we have the basics settled, let’s go through the major types of real estate ownership.
We’re going over:
- Sole ownership
- Tenancy by Entirety
- Community Property
- Tenants in Common
- Joint Tenancy
Not all of these are available in each state, but here are the definitions of major types of home ownership in the U.S., their pros and cons, and how they are commonly used.
Sole Ownership: Ownership of Real Estate by a Single Party
Sole ownership is the simplest and most common type of ownership when it comes to real estate. For single, unmarried, widowed, or divorced decedents, chances are high that the individual passed away with property held through sole ownership.
What Is Sole Ownership
Sole ownership refers to property that is fully owned by a single individual.
There are a variety of characteristics that can be used to identify if real estate is held through sole ownership, including:
- The owner has complete testamentary and lifetime control over the property.
- There are no restrictions on how the property holder can use the asset while alive.
- The owner can leave the assets to whomever they wish at their death.
- The property is subject to probate.
If those four characteristics apply to the property, then it’s likely that the real estate is held through sole ownership.
As a rule of thumb, the most important aspect of sole ownership is that the owner has complete control over the property during their lifetime. There are no restrictions on what the owner can do with the property, how they can dispose of it, or who they want to give the asset to.
The fact that the owner has “testamentary” control over the property means that the owner can choose how they want the property to be administered according to the owner’s will.
If the owner wants the property to be sold at their death, then they can stipulate that in the last will &and testament. If the owner wants to bequeath the property to a son or daughter, then the owner can stipulate those intentions in the will.
The distribution or disposition of the property will ultimately be determined by the owner’s will, provided that the owner dies testate (with a will) and not intestate (without a will).
Who Uses Sole Ownership
The following individuals are likely to title property through sole ownership:
- People living and buying by themselves.
- People buying multi-family rentals, retail properties, and land.
- Anyone else who wants to silo ownership to just themselves.
Sole ownership gives the most freedom—and power—of any type of ownership, so it is popular among individuals who hope to take and keep control of property.
This type of ownership would not be as common for married couples, business partners, or individuals who want to share ownership with another person (we’ll get to that a little bit later).
How Sole Ownership is Created
Sole ownership is simple because it only requires that one individual serve as the owner of the property. It is also simple, however, in how easy it is for an individual to obtain the ownership.
Sole ownership can be created through purchase, inheritance, transfer, or any other method of property acquisition. If an individual can obtain property, then that property can be held by sole ownership. No other party or individual is required to uphold the legal ownership of the property.
How Sole Ownership Relates to Probate
If an individual is hoping to avoid probate through sole ownership, the individual will be very disappointed.
Sole Ownership properties must go through probate when someone passes unless they fall under a certain value threshold that changes depending on state. That threshold is usually around $150k, meaning most houses exceed that and have to go through probate.
When it comes down to property valuation in the probate process, the following details are very important:
- The valuation of the sole ownership property is the fair market value of the property at the time of the owner’s death.
- Any income that the owner accrued from the property (rental income, for example) is reported on the owner’s federal income tax return during the owner’s lifetime. Income accrued up to the date of death will be included on the deceased individual’s final income tax return.
- Heirs or beneficiaries who receive sole ownership property will get a new cost basis for the property. The new cost basis is the fair market value at the time of the owner’s death, which is also the same valuation included in the owner’s gross estate during the probate process.
In many cases, an individual might own different parcels of real estate in several different states. How does this affect the probate process?
Sole ownership property that is located in a state that is not the owner’s domicile jurisdiction is subject to ancillary probate at the owner’s death.
Ancillary probate is an additional probate process that is required when a deceased individual owned real estate in a different state than the individual’s domicile.
Ancillary probate is not the same as the traditional probate process. The probate process is determined by the estate owner’s domicile and the local laws, but the ancillary probate process is determined by the laws of the state where the asset is located.
In most cases, the ancillary probate process and the traditional probate process will occur simultaneously.
- Sole Ownership is the simplest ownership type for individuals.
- It is also the most common ownership type for individuals.
- It offers the most control and power over property.
- No one needs to approve any decisions made about the property, assuming they don’t violate ordinances or other laws.
- Sole ownership houses usually have to go through probate when being inherited with or without a will.
- The property’s value at the owner’s date of death will be included in the owner’s taxable estate.
When Sole Ownership is Useful
- It is the simplest form of ownership.
- It is a good default for anyone buying real estate by themselves.
- Property held by sole ownership can be transferred, sold, or gifted with relative ease.
- It is easy to complete a valuation of property held by sole ownership.
When Sole Ownership Can Backfire
- Unless the testator (person who makes a will) prepares ahead of time, sole ownership property usually goes through probate, which can complicate the transfer process for heirs and beneficiaries.
- If there is no will, sole ownership properties will be distributed according to intestacy laws, which are the laws that govern asset distribution if someone passes away without a will. In some situations, this can mean that property can go to a blood relative or heir instead of a partner or other desired recipient.
- If the property is held in a state other than the estate owner’s domicile, the property will be subject to ancillary probate. This can lengthen the closure of the estate and add complexity to the entire probate process.
Tenancy by the Entirety
What Is Tenancy by Entirety
Tenancy by entirety is an ownership method that can only occur when two owners are legally married. In the eyes of the state, those two owners are viewed as one legal owner.
Although there are technically two individuals in tenancy by entirety ownership, each individual owns the entire property (hence the term “entirety”). There is not a 50%-50% ownership split, as you might find in other forms of real estate ownership. The split is 100%-100%, with both individuals owning the full amount of property.
Tenancy by entirety isn’t accepted by all states. In fact, only half of the states in the US accept tenancy by entirety as a legal form of ownership.
The states that accept tenancy by entirety are: Alaska, Arkansas, Delaware, Florida, Hawaii, Illinois, Indiana, Kentucky, Maryland, Massachusetts, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Tennessee, Vermont, Virginia, and Wyoming.
Who Uses Tenancy by Entirety
This ownership method can only legally be used by married couples.
Why is tenancy by entirety restricted to just married couples? It all comes down to the legal union that is recognized by the courts when two people are married.
Married couples are granted a handful of rights that unmarried individuals do not receive. For example, one spouse can use an unlimited marital deduction to leave assets to the surviving spouse without paying federal estate taxes. Those spouses can also use the deceased spouse unused exemption (DSUE) to avoid federal estate or gift taxes.
Marriage also has an impact on inheritance and distributions. Who is the one individual that a married person cannot disinherit in their will? That’s right—their spouse.
While individuals remain married, their property is considered to be owned by both spouses equally and fully.
How Tenancy by Entirety is Created
Like most forms of ownership, there are a variety of ways that tenancy by entirety can be created.
- If a couple is already married and purchases real estate, the property will be held as tenancy by entirety.
- If a couple is unmarried and purchases real estate before becoming married, the ownership does not automatically change to tenancy by entirety. The couple must execute a new deed to themselves to create tenancy by entirety ownership.
- If one individual possesses sole ownership property and then marries another individual, the ownership does not automatically change to tenancy by entirety. The owning individual must execute a new deed to create tenancy by entirety ownership.
Let’s take a look at that last example. If you are unmarried and own a house through sole ownership before you get married, then you still own the house through sole ownership after you get married. If you want your spouse to also fully own the house, you will need to create a new deed to create tenancy by entirety ownership.
If you do this, however, then you need to understand the tax liability that you create. If you own property individually but then change the title to tenancy by entirety, you are effectively making a gift to your spouse. You will be liable for gift tax on half the value of the property.
How Tenancy by Entirety Relates to Probate
Right of survivorship lets property under tenancy in entirety pass automatically to the surviving party. This means this asset can bypass probate and should not be counted as a “probate asset” when calculating the value of someone’s estate.
In addition, tenancy by entirety offers protection from creditors. If property is owned through tenancy by entirety, creditors cannot make claims against the property unless debt was held by both spouses. When one of the spouses die, then, the creditors cannot try to take assets that are legally owned by the surviving spouse.
Key Facts about Tenancy by Entirety
- Unique to married couples.
- The couple is considered one entity in the eyes of the state.
- Has the Right to Survivorship.
- If a couple with tenancy by entirety divorce, they become tenants in common.
- Both spouses must agree to sell.
- Occurs when a couple buys land together.
- A creditor cannot claim a lien on the land unless both spouses are responsible for the debt.
When is Tenancy by Entirety Useful
- Has right of survivorship, which means the asset can skip probate.
- If someone passes, there is nothing that needs to be done to transfer ownership.
- Income and asset is secured from an unauthorized sale since both parties must agree to sell the property.
- The asset is protected against creditors unless the spouses are jointly liable for the debt.
When Tenancy by Entirety Can Backfire
- When disputes arise and spouses cannot agree how or when to sell the property.
- Property cannot be subdivided.
- When one spouse “gifts” the property to the other spouse by changing the title from sole ownership to tenancy by entirety & and triggers taxes.
What Is Community Property Ownership
Community property is a type of ownership that gives equal rights to any assets acquired by a couple during marriage. Regardless of how a spouse acquires property while married, the assets are deemed as marital property and are owned by both spouses.
If one spouse has an income that is substantially larger than the other spouse and purchases property, the spouse that purchases the property is not the sole owner. The property is viewed by both spouses equally.
Who Uses Community Property Ownership
Married couples in 9 specific states are subject to community property.
The states that recognize community property are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
In the 41 other states, property that is purchased by one spouse is deemed to be owned by that spouse. If the spouses choose to title the property as tenants by entirety, of course, then both spouses will own the property equally. The default in a non-community property state, however, is that the purchasing spouse is the sole owner of the property.
How Community Property Is Created
Community property is created when the two following steps occur:
- A married couple lives (or has lived) in one of the 9 community property states.
- One or both of the spouses acquire property or assets while married.
As simple as that sounds, that’s really all there is to community property.
How Community Property Ownership Relates to Probate
Community property states do recognize the right of survivorship. In the community property state, all assets that are considered to be community property are automatically inherited by the surviving spouse.
Just as with tenancy by entirety, community property ownership can allow a deceased individual’s estate to avoid probate and transfer entirely over to the surviving spouse. Only assets that are not held by community property ownership—including any assets that the deceased individual may have owned prior to the marriage—will be included in the deceased owner’s estate and included in the probate process.
Key Facts about Community Property
- Any property bought after getting married is considered dually owned, even if bought by a single spouse.
- This means any property is subject to be sold to pay off debt collectors without reimbursement.
- Regardless of who earned or spent what, the property rights are equal.
- Only California, Arizona, Nevada, Louisiana, Idaho, New Mexico, Washington, Texas, and Wisconsin have community property laws.
- Community property ownership avoids probate by passing assets directly to the surviving spouse.
When Community Property Ownership Is Useful
- Reduces paperwork and friction when married couples want to buy assets since one signature counts for both spouses in effect.
- Ensures that both spouses receive equitable ownership if one spouse earns more than the other spouse.
- Helps to avoid probate by transferring ownership of community property assets directly to the surviving spouse.
When Community Property Ownership Backfires
- If one spouse runs into financial difficulties, the other spouse could lose the shared asset to pay off that debt without any right of reimbursement.
- Community property ownership can be difficult to split evenly if the married couple divorces. A 50%-50% split between assets can be especially difficult for real estate, often resulting in the required sale of the land.
Tenants in Common
Tenants in common—or tenancy in common—is a legal agreement in which two or more individuals come together to form a partnership to share ownership rights in property.
The individuals who have tenancy in common ownership are deemed to own individual portions of the property that they manage separately. The property can be divided in any way—50%-50%, 40%-60%, or however the owners choose. If not specifically stated in the deed, the property rights will be split evenly across the partners.
What Is Tenants in Common
As with sole ownership, an individual who owns property by tenancy in common has full testamentary control over his portion of the property. At the same time, however, the individual has the right to fully enjoy all aspects of the property.
Let’s think of an example: Luke and Susie own 40% and 60% of a parcel of land, respectively. Luke has complete testamentary control over 40% of the land, so 40% of the land is his to do with as he likes. Although he only owns 40% of the land, Luke does not just have to stay on that 40% of land. He is free to occupy and enjoy all of the land whenever he likes.
When one of the owning partners dies, their portion of land does not go to the other tenants in common. There is no Right of survivorship.
Instead, the deceased partner’s land goes to heirs or beneficiaries as stated in the deceased’s will or determined by local intestacy laws.
Who Uses Tenants in Common
Tenants in common is similar in many ways to tenancy by entirety. While tenancy by entirety requires that the two individuals are married, however, there is no such requirement with tenants in common.
Family members, friends, romantic partners, or business partners might choose to own property as tenants in common. After all, the ownership structure allows you to own a portion of the property while still enjoying all of the land rights. At the same time, you have the opportunity to bequeath the will to your heirs or beneficiaries after your death.
Divorced couples also hold property as tenants in common. If a married couple holds property as tenancy by entirety during their marriage but then decides to divorce, the property will automatically revert to tenancy in common once the divorce is complete.
How is Tenants in Common Created
Tenancy in common is typically established in the deed when two or more individuals come together to purchase ownership in land. The individuals could either purchase the property from the same previous owner or purchase the parcels of property from separate previous owners and then change the title to tenants in common.
An individual could also enter into tenancy in common by inheriting land from the previous owner. If Luke and Susie own land as tenants in common but then Luke passes away, his portion of the land would be distributed to the heir or beneficiary listed in Luke’s will. The individual who then receives the land would hold the property as tenants in common with Susie.
How Tenants in Common Relates to Probate
Because there is no right of survivorship with tenants in common, any property that is held by an individual will be subject to probate upon the individual’s death.
What’s important to note here is that the full parcel of land will not be subject to probate. Only the portion of the land that the individual owned at the time of death will be included in the owner’s gross estate.
Going back to our example of Luke and Susie. If Luke owns 40% of the land through tenancy in common and Susie owns the other 60%, the probate process will only include the 40% of the land that Luke owned at his death. The remaining 60% of land would not be subject to probate until Susie passes away.
Key Facts about Tenants in Common
- Individuals who own property as tenants in common have full control over their portion of the property.
- Individuals can utilize or enjoy the entire property and are not limited to their portion.
- There is no right of survivorship.
- Individuals can bequeath their portion of the land to a named beneficiary or heir in their will.
When Tenants in Common is Useful
- Can facilitate more nuanced ownership arrangements.
- Can split financial ownership by whatever percent desired.
- Good for avoiding the right of survivorship.
- The percent splits only apply to financial ownership, everyone on the deed still has equal rights to use the property.
- Makes purchases easier.
- Owners can use their portion to negotiate other financing with separate endeavors.
- Liens will only be placed on a portion of the property owned by the individual in debt.
When Tenants in Common Backfires
- No survivorship rights.
- Debt liability on property is split across owners. So if one owner can’t come up with the cash for property taxes or some other debt, the other owners can be responsible in full.
- Liens must be cleared before a full transfer of ownership and title can be completed.
- If individuals agree to tenants in common ownership but then one of the individuals dies, the deceased’s ownership will transfer to a beneficiary or heir. The surviving original owner may not have intended to hold ownership as tenants in common with the deceased’s individual’s beneficiaries or heirs.
Joint tenancy is similar to tenants in common except when someone passes away, the property is given to the other owner/individual on the deed instead of the deceased’s heirs or beneficiaries.
This is known as the right of survivorship and must be stated on the deed. If the right of survivorship is not mentioned on the deed, the courts will classify this ownership as tenants in common.
What Is Joint Tenancy
Joint Tenancy is a type of ownership when two or more people own a property and share equal rights and ownership splits.
Joint tenancy is similar to tenants in common except when someone passes away, the property is given to the other owner/individuals on the deed (a.k.a. Other joint tenants) instead of the deceased’s heirs or beneficiaries.
In the vast majority of states, if you and the other tenants/owners call yourselves “joint tenants with rights of survivorship” anywhere on the deed and/or put JTWROS after your names or signatures in the deed, you create a joint tenancy.
In order to become joint tenants, you must buy the property at the same time, have everyone’s name on the deed, have the property equally divided, and give all owners all rights.
Who Uses Joint Tenancies
Joint tenancy is an extremely common form of ownership since it isn’t exclusive to married couples. This means any partners, family members, or other relationships can jointly own the property while sharing equal rights.
How Joint Tenancy is Created
Unlike tenants in common, which allows an individual to inherit the ownership from a deceased owner, joint tenancy has specific requirements when it comes to creating ownership.
Joint tenants cannot inherit ownership from a deceased family member. Instead, all joint tenants on the deed must purchase equal shares of the property at the same time. In many cases, joint owners will consult with a real estate lawyer to create a co-ownership agreement that binds both parties to the purchase of property.
How Joint Tenancy Relates to Probate
Right of survivorship lets property under Joint Tenancy pass automatically to the surviving party. This means this asset can bypass probate and should not be counted as a “probate asset” when calculating the value of someone’s estate.
Key Facts about Joint Tenancy
- Equal rights, income, and use across tenants.
- Share mortgage and tax burdens.
- Most common type for married couples but not exclusive to married couples.
- If someone attempts to create a joint tenancy with right of survivorship but doesn’t effectively establish the right of survivorship, the courts will treat the ownership as tenants in common.
- JTWROS = joint tenancy with right of survivorship.
- Can skip probate if the right of survivorship is stipulated on the deed.
- Homes sold that are valued above certain thresholds when someone passes can be subject to estate taxes.
- You can’t sell a jointly owned property without the consent of all other owners.
When Joint Tenancy is Useful
- Reduces investment burden by spreading risk and costs across parties.
- Good way to get into investing by partnering up with someone.
- Right of survivorship means the asset can bypass probate, even without a will.
- No need to be married, making it ideal for long-term partners.
When Joint Tenancy Backfires
- Creditors can force the sale of the asset if an owner has debts, meaning if one person royally screws up, a creditor could force a sale even if the other partner doesn’t want to.
- Both tenants must agree to the sale or transfer, becoming a nightmare if a dispute occurs. Say someone owned a piece of real estate property and wanted to sell it instead of a different home owned individually to cover debts, the other joint owner could refuse to sell and force the sale of a different home or asset.
- Estates above value thresholds can be subject to estate taxes.
- Any financing must be approved by all partners.
An example of Joint Tenancy
John and Michael agree to purchase land as joint tenants with the right of survivorship. When creating the deed, the two individuals split the land 50%-50% and stipulate that the right of survivorship exists.
John and Michael purchase the land and each own it equally. After many years, John passes away. Because of the right of survivorship, John’s portion of the land goes directly to Michael, the surviving owner. Michael then owns the land fully as the sole owner.
Other Types of Home Ownership You May See
A corporation is able to hold real estate in its own name, making corporations a great solution for reducing risk and minimizing personal financial liability.
The corporation will hold the deed in its own name, so there won’t be one individual owner who owns the land. If an individual has an interest or ownership stake in the corporation, however, then that interest or ownership stake will be included in the individual’s taxable estate upon their death.
Like corporations, trusts can hold ownership in real estate. Although trusts are a bit more nuanced than most forms of ownership, one of the benefits of trusts is that the assets held in trusts avoid probate.
There are specific trusts—called “land trusts”—that are specifically dedicated to holding land. These trusts are often either used to maintain land during a grantor’s lifetime or to conserve land after a grantor’s death.
A partnership is created by two or more individuals who agree to form and own a business together. LLCs can be structured to operate as partnerships, but there are some standard differences between a partnership LLC and a general partnership.
In a partnership, both partners are typically liable for the debts accumulated by the other partner. In an LLC, that’s not the case. If one owner of the LLC accrues debt, the other owner is not liable for that debt. For that reason alone, many owners choose to pursue the route of establishing an LLC.
Owner partnerships and LLCs are typically used by business partners or friends and family members who own a business together. The purpose of these entities is not generally to own real estate for personal use. Instead, individuals would typically only form owner partnerships or LLCs if they were purchasing real estate as an investment or for a specific business purpose.
How Do You Find Out What Type of Ownership a Home Has?
Start by looking for a copy of the deed if the deceased had a safe, folder of important documents, etc.
Chances are they kept the deed near the car title, bonds, and other documents.
If no luck, look up the deed in public records
States keep public tax records of property ownership transfers. Each state’s process will be a bit different, but here’s how I found the deed of a house in TN.
Step #1 - I searched “tn real estate deed records lookup”
Then I found a link that said “Property Data” with a .gov domain. That’s how you know it’s an official government website.
Step #2 - I clicked into my county and was taken to the local county government’s assessor of property site. Then I clicked "real property" and chose "simple search"
Step #3 - I searched for the street name I wanted to find.
Step #4 - I clicked into the house I wanted and clicked “view deed”
Step #5 - I found the ownership in the deed.
As you can see in the first large paragraph, this home was owned by a Revocable Living Trust until it was transferred to a Limited Partnership.
Real Estate Ownership FAQ
How Can You Change Your Form of Home Ownership?
Changing your ownership involves changing your deed.
You need to:
- Identify who or what is getting the title
- Talk through the terms and conditions
- Complete a change of ownership form (which form depends on the state)
- Change the title on the deed
- Hire a real estate attorney to prepare and finalize the deed.
- Notarize and file the deed with the local government
This type of work is worth hiring a real estate attorney for since it is highly specialized and localized. They’ll be able to walk you through the next steps.
What is the difference between fee simple and sole ownership?
Fee simple and sole ownership often go hand in hand. When you have sole ownership, your fee simple interest in the land means that you have complete and total ownership over the land.
You do not have to be the sole owner for fee simple ownership to apply. You can even be a joint owner with another individual and still have fee simple privileges, provided that you have control over the distribution of the property upon your death.
Tenancy in common is a great example where fee simple ownership applies. Although you are technically a joint owner of the land, you have the authority to determine how the land is distributed upon your passing. You have a fee simple ownership in that scenario.
What if a Will says I get a property but it has rights of survivorship?
The rights of survivorship win. So in this case, the will would be ignored and the property would go to remaining individual in a Joint of Tenancy with Survivorship rights, Tenants in Entirety, or
What happens to a house if someone dies without a will?
If an individual dies without a will, their house will be distributed to the deceased’s heirs according to the state’s intestacy laws. If no living heirs exist, then the house will likely “escheat” to the state.
It’s important to note that any houses or real estate that the individual owned in states other than the individual’s domicile will have to go through ancillary probate. As we noted earlier, ancillary probate is a separate probate process that occurs simultaneously to the traditional probate process. Ancillary probate applies the distribution laws of the state where the property is located to the property.
Other Real Property Terms You May See
A few other more rare terms you may need to be aware of:
This is when ownership isn’t realized until certain conditions are met. This can happen via a will or trust. And if the conditions aren’t met, they are sometimes gifted to someone else.
For example, Jack states that a house will be given to his daughter Jessica after she becomes a doctor. If she does not become a doctor, the house will be given to her brother, James. Pretty harsh from Jack, but that is an example of a contingent interest.
This is when property will be given to someone in the future, usually via an irrevocable trust. This is usually tied to the death of the trustor, or person who created the trust.
For example, Sarah creates a trust and says that her goddaughter Jessica will get her home when she passes away. Jessica, assuming the trust is irrevocable, has a future interest in the property. Note that future interest isn’t established if the trust is revocable or if the testator of the will is still alive, since they can change the terms of the trust or will and remove that person if they wish.
An easement is when you have a set of rights involving someone’s property that don’t include ownership.
This is usually the right to cross through the land or use it in another way, such as farming.
For example, someone who passed away may have stipulated in a trust that their family can keep a farm, but only if they continue to allow locals to farm 25% of the working land for X amount of years.
Improved Property just means property where residential, commercial, or other buildings have been built. Unimproved property is land that hasn’t been developed yet — a.k.a. lacking utilities such as electricity, water, telephone or street access.
Power of Appointment
The right to transfer or sell a piece of property. In many cases, an owner will distribute or bequeath property to an individual and also transfer the power of appointment. That power of appointment gives the beneficiary the right to designate a new owner or recipient of the land if they choose to do so.
The right to own a piece of property by signing a real estate agreement. This means that someone has the right to own a property even while other formalities and ownership are pending.
Free and Clear Ownership
Any real estate that does not have debts or liens tied to it is considered to be “free and clear.”
If you hear someone say that they own the land “free and clear,” that just means that the individual owns the land outright and that the land is no creditors have claims against the land. Although free and clear ownership is technically a legal term, it’s used more frequently now as a common term to emphasize that no debts or creditors can lay a claim against the property.
Think of fee simple ownership as a broad umbrella of rights. Fee simple gives you complete ownership and control over property, and you can have specific ownership types (sole ownership, tenancy in common, joint ownership) within fee simple.
Key facts about fee simple:
- Is a broad umbrella term for a bundle of ownership rights
- Many ownership types (sole ownership, tenancy in common) can fall under fee simple ownership.
- Fee simple is the most common type of home ownership.
- Fee simple gives the full and total ownership of a piece of land and any property on the land.
- As long as your actions are legal, you can do whatever you want with a piece of property you have fee simple ownership of.
- When you have fee simple ownership, you can pass the land to whomever you’d like upon your death (provided that you wrote a will, of course).
The creation of fee simple
The assumption these days is that ownership is meant to be conveyed as fee simple. Even if language doesn’t exist in the will or deed stipulating that the land is held fee simple, most states now rule that the default method of conveyance is fee simple ownership.
Even though fee simple increasingly more common, it’s still always a good idea to put explicit language in the deed or will stating that the land is conveyed “to [owner’s name] and his heirs.” This language—“to his heirs”—ensures that the property is conveyed as fee simple ownership.
Life Estate Ownership
Life estate ownership is not the same as fee simple ownership. While fee ownership gives you complete control over property, life estate ownership only gives you the right to possess and enjoy the property during your lifetime.
Life estate ownership restricts you in a variety of ways. You can’t sell the property, give it to anyone else, or bequeath it to another individual when you die. Instead, the land goes to whoever was named as the beneficiary in the trust, deed, or will that created the life estate.
When might a life estate ownership come in handy? Let’s say that you have a spouse and children. When you die, you want to ensure that your surviving spouse can live on the property for the remainder of his or her life. Although you trust your surviving spouse, you want to ensure that the property goes to your children when your surviving spouse passes away. Your surviving spouse has a life estate ownership over the property but does not have a fee simple ownership.
A home is often the biggest probate asset in an estate
Remember that during probate and estate settlement, a home is usually the biggest asset the estate will have.
In other words, it doesn’t get more complicated than this.
Speaking of probate, if you're in the middle of it, here are some quick links to get something done right now:
- Get every Probate Form You Need
- Build Your Inventory of Assets
- See What Separates Successful Executors from Flops
That's it for our 5 types of real estate ownership guide. Was this helpful? What are your experiences when transferring real estate during probate? Leave a comment below and let us know your thoughts.