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Home ownership choices should be made carefully

(ran HH edition)

Most home buyers wonder if they're making the right choice when they choose their method of home ownership. Unfortunately, as we will see, their selection is often not the best.

For example, most home co-owners elect joint tenancy. They figure when one owner dies, the survivor will automatically receive the home. However, joint tenancy can be a costly mistake, especially in second marriages, because an owner's will has no effect on a title held in joint tenancy, which automatically goes to the surviving joint tenant. Here are the most widely used real estate ownership methods:

Ownership in severalty. When you buy a home as separate property in your own name, you have little choice in the title ownership method. Your probable ownership method is called "ownership in severalty." That means you hold title alone in sole ownership.

However, if you are married, please be aware your spouse may automatically acquire a spousal ownership interest in the property you thought was your own. Consultation with a real estate lawyer is always suggested, especially in marital situations.

But, instead of sole ownership, you have a better ownership title method available. It is the living trust that will be discussed below.

Tenants in common. The most widely used way for two or more co-owners to acquire title to real estate when each wishes to retain control over their share by will is by using a tenancy in common. Each tenant in common co-owner can own equal or unequal shares and can pass their interest by will.

In second marriages, this ownership method is especially useful when each spouse wishes to will their share of the property to their children from a previous marriage.

But when a dispute arises between tenants in common, such as one owner wants to sell the property and the other doesn't wish to sell, one tenant-in-common can bring a partition lawsuit to force the sale of the property. Partition can be a disadvantage for the tenant in common who doesn't want to sell.

Joint tenancy with right of survivorship. Joint tenancy with right of survivorship is the most widely used ownership method between married spouses. But this title method is not limited to just married people. Any two, three or more co-owners can select this technique.

The survivorship aspect is what makes this method so attractive. When a joint tenant dies, the survivor automatically receives ownership without any probate. All that is usually required is for the surviving joint tenant to record a death certificate for the deceased joint tenant plus an affidavit of survivorship.

Even if the deceased joint tenant willed his share of the property to someone else, the will has no effect on joint tenancy property. For example, children of a deceased joint tenant are thereby disinherited since the surviving joint tenant receives the title.

As with tenancy in common, a joint tenant can sue for partition to force the sale of the property. The sale proceeds are then divided among the joint tenant co-owners.

In some states there is a special form of joint tenancy for married spouses called tenancy by the entireties. This means neither spouse can convey his or her ownership share during their lifetime without the other spouse's consent.

Community property. When married spouses acquire real estate in California, Nevada, Louisiana, Wisconsin, Texas, Arizona, Washington, Idaho and New Mexico they can hold title as community property. Each spouse owns 50 percent, which can be passed by will.

When the deceased spouse wills his share to the surviving spouse, the survivor receives the entire property with a new basis that is stepped up to market value. This is a major community property advantage. However, the same result is available from Revenue Ruling 87-98 when married joint tenants acknowledge in writing before death their property is really community property, even though title is held as joint tenancy for convenience.

Living trust. The most overlooked, yet most advantageous, method of property ownership is holding title in a living or inter vivos trust. Either a sole owner or co-owners can use this method to avoid probate costs and delays, as well as to provide for automatic property disposal upon death and property management in the event of incompetence of the owner.

Until one of the original living trust beneficiaries dies or becomes incompetent, they continue to deal with their property as before. But when a living trust initial beneficiary either dies or becomes incompetent, then the alternate trustee takes over. This might be, for example, an adult child or other relative.

Upon the death of the trust creator, the property title passes without probate as provided by the terms of the living trust. These trust terms can be changed at any time before death by the trust creator because the living trust is revocable.

Another living trust advantage is privacy. For example, the late Bing Crosby held all his substantial real estate holdings in a living trust. When he died, the public didn't learn the details of his vast living trust property holdings, who received them or the full circumstances.

Other co-ownership methods. There are other real estate co-ownership methods, such as limited partnerships, corporations and irrevocable trusts, but they usually are not suitable for routine property ownership. Consultation with a real estate lawyer is suggested to learn which title method is best for your situation.

Robert J. Bruss is a nationally syndicated columnist on real estate. Write to him in care of At Home, the Times, P.O. Box 1121, St. Petersburg, FL 33731-1121. Questions of general interest will be answered in the column. Because of the volume of mail, personal answers to questions are impossible.