How Should You Hold Title?

If you are planning on buying a property, or may already own one, you should give some serious consideration as to how you hold your interest in that property. Today we explore your options. While this may seem like a very boring and esoteric topic, it is very important for you to understand which option is best for you. You cannot ask your Escrow or Title Officer for their recommendation. That would constitute giving legal advice, which they are prohibited on giving.

Picking the wrong option could create problems down the road. In every case, how you hold title directly impacts what happens when you die.

The various options when it comes to holding title start by breaking it down into two very simple categories: You either own it alone, or you own it with others. Not matter how many are on title, in Hawaii, the phraseology always contains the word “Tenants” or “Tenancy” somewhere in the description. You may think of a tenant as someone who rents, which is one definition of the word. But in this case, the primary definition is the one we want: “…a person who occupies land or property”.

Tenants in Severalty:
If you will take title alone, meaning no other person or entity shall have an ownership interest, you will hold that property as Tenants in Severalty. The word Severalty may seem confusing at first, but think of the word deriving from the word severed, not several. Tenants in Severalty is also used if you take title using a single Trust.

If you will hold title with others, you will have three options to choose from: Tenants in Common, Joint Tenants, and Tenants by the Entirety. We’ll expand on each one, as each one deals differently with how your property is transferred upon your death.

Tenants in Common:
This designation of ownership is most commonly used by those that are not husband and wife. Husbands and wives can use this designation of ownership, but it is not very common because of what happens to your property when you die.

With this designation of ownership, each party recognizes that they each individually own a specific percentage of the property. Upon their death, that interest in the property becomes part of their individual estate. Who gets their share of the property is determined by the estate plan of that individual. In my experience, the only times I have seen married couples use this designation of ownership is when their current marriage is one from later in life, where each spouse has children from previous marriages. In this case, each spouse’s interest would go to those listed in their will or trust.

Joint Tenants:
This designation recognizes that the property is owned jointly in a special relationship with those on title. All those on title own an equal share of the property and enjoy the right of possession to that property. When one of the joint tenants passes away, their share of the property is then divided equally to the other joint owners.

This used to be the most common form of ownership for married couples. Because of the “right of survivorship”. That means that one spouse would automatically get the interest of the other spouse upon death.

While it is easy to think of the right of survivorship amongst married couples, it is not exclusively for them either. Any two or more people wishing to have their ownership in a property automatically go to the remaining parties upon their death, can opt for Joint Tenants.

What makes this option appealing for many is that no judge or probate is required.

Tenants by the Entirety:
This designation is reserved for only those that are married. It has replaced Joint Tenants as the primary way of holding title for those married.

Tenants by the Entirety offers all the same benefits and rights of those listed above for Joint Tenants, but Tenants by the Entirety offers one additional benefit over Joint Tenancy. Tenants by the Entirety offers protection against individual claims against a marital asset. What that means is that if one spouse is sued individually, that claim cannot be attached to your jointly held asset. I refer to this as the “Las Vegas” defense. If one spouse runs up a bill individually, the other spouse is not in danger of losing their home due to their spouse doing something stupid. It is important to note that joint debts and liabilities can be attached to your jointly held home.

The above can never replace the detailed advice of an attorney. I have always advocated to seek professional advice for proper estate and liability planning. Before you ever sign an offer to buy a property, you should already know how you plan on holding it. And if you already own a property, and now realize that maybe you are not using the right form of tenancy, it is never too late to change it.