Congratulations! Your search for the ideal home has culminated – you’re under contract. Now the home buying process transitions into a new phase.

An important step in this phase is determining and selecting the most appropriate type of ownership. The most common means of owning property are 1. Sole ownership; 2. Tenants by the entirety; 3. Joint tenants; and 4.

Tenants in common. Understanding the implications of each will set the stage for your present and future enjoyment of the property.

Sole ownership: This is the simplest form of ownership – one person has complete ownership of the home. Under sole ownership the owner can sell, give or donate the asset to anybody without concerns or claims from others. The property is transferred based on that person’s wishes in a will. If there is no will, it passes to that person’s heirs based on state law.

The beneficiary who receives the property also receives a “step-up” in the basis of the house for tax purposes. For example, if a parent bought a house 30 years ago for $100,000 that is now worth $1 million. They would have a gain of $900,000 if they sold it.

If they passed away, the “basis” on which the heirs could be taxed would “step-up” to $1 million. If the property sold for that amount, there would be no capital gains.

Tenancy by the entirety: Only a husband and wife can own property as tenants by the entirety. Neither the husband nor the wife owns the property – the marital state or union owns the property. If two people who are married to each other take title to property, they will own the property as tenants by the entirety unless the deed specifically states otherwise.

However, an unmarried couple who own property together and subsequently get married do not then automatically own the property as tenants by the entirety. They must record a new deed to create a tenancy by the entirety. Neither spouse may sell or encumber the property, or any interest in it, without the other spouse executing the deed.

Joint tenancy: A property owned under joint tenancy exists when two or more people own equal, undivided shares of a property. Any individuals, regardless of relationship, can hold this ownership. Each joint tenant has an undivided right to possess the whole property and a proportionate right of equal ownership interest. The ownership stake is not transferable either while alive, or upon death. It cannot be passed down to that person’s heirs, regardless of whether there is a will or not. When one joint tenant dies, that interest automatically transfers to the surviving joint tenant(s) by operation of law.

Joint tenancy with rights of survivorship: Almost identical to joint tenancy, the major difference is that ownership can be transferred to another person while alive. When a joint tenant dies, that person’s interest passes on to the remaining joint owners.

There is, however, a tax implication when an owner passes. At the time of death, the other owners receive a step-up in value based on the deceased’s portion of the property. If the surviving owner(s) were to sell the property, they would be required to show the full gain on their share of the property.

Joint tenancy in common: Like the previous joint tenancy options, joint tenancy in common gives each owner an undivided interest in the property. However, under joint tenancy in common, the owners can 1. Hold different sized stakes in the property, and 2. Sell, give or donate their share of a property without the permission of the other owners.

Their ownership is not transferred to the remaining owners, nor is it passed on to a spouse. It is passed down to their heirs based on state law.

Regardless of whether there is a will, the property must go through probate. Once the probate process has been completed, the deceased’s interest in the property goes to his or her heirs, and the heirs receive that interest at a stepped-up basis, or current market value.

The value of the deceased’s interest is included in his or her estate. If the property is sold, then taxes will be based on the entire value of the property. This form of ownership is often selected by couples with children from prior relationships, siblings, and others who want to ensure that their heirs will inherit an interest in the property upon the owner’s death.

Trusts: While not technically a form of ownership, real property can be owned through a living trust. Upon passing, ownership transfers to the successor trustees and/or beneficiaries designated in the trust.
When buying a home it’s vital to make sure you review which of the ownership options are available to you. Talk with your trusted, expert Realtor and real estate attorney to discover the option that best fits your situation.

This column is produced by Rick Bisson and his family, who own Bisson Real Estate with Keller Williams Realty of Midcoast and Sugarloaf.

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