Property Ownership: It Affects Us Every Day!
I deal with a lot of property issues in my practice. They come up in all sorts of matters from family law, to guardianships, to trust and business matters. Issues of ownership are fundamental in our lives. Just think about it: whether you lease your home, own it outright, or own it subject to a mortgage and whether you do so individually, or with another person, all affect your rights in the home. The same is true for your cars, bank accounts, and the like. These questions all affect us when we buy something, sign for a loan, insure an asset, or determine the best way to invest an asset for ourselves or our family.
There are several basic ways to own property. This article will to give you broad overview of those issues.
The first way to own something is, of course, by yourself. When you own something as an individual then you have the sole authority to possess it, sell it, invest it, or to take a mortgage or lien on it. As an example, think about your car: if you are the only person on the title, then you are the only person who can drive it or give permission to drive it. If someone drives your car without your permission, then we consider it stealing. When you are the only person on the title, you are also the only one who can sign the title. This can prove challenging if someone else has to dispose of the asset, and may require a court ordered guardianship or probate to sell the asset.
The second way to own something is jointly with another person. When you own it jointly, then the two (or more) of you must act together to sell it, invest it, or to take a mortgage or lien on it. Additionally, that asset is subject to the rights of the other person to occupy it, or subject to their creditors. For example, consider a home. Many people own their homes as “joint tenants with rights of survivorship” with their spouse. As joint owners, you both have equal right to possess and occupy the property. This also means that, if you ever decided to sell it, then your spouse would have to sign off on it. This form of ownership has the advantage that the asset automatically becomes owned by the survivor upon the death of one of the owners.
As a general rule: I do not recommend owning an asset jointly with someone you are not married to because what you own stands for what you owe. When you own an asset jointly with a child, for example, your son or daughter now owns 50% of your home. That 50% ownership can be subject to the debts or liabilities your child incurs, including things like credit card bills or a judgment arising from a car accident. Because joint ownership with a non-spouse places you at risk of loss of the asset, and because you lose other control (like the ability to sell, or to limit access), I believe that joint ownership with a non-spouse is unwise.
A third way to own something is to have a pay-on-death beneficiary listed. This is a type of account that, upon the death of the last owner, is paid to someone else. The classic example of this is a life insurance policy. Upon the death of the insured-owner, the account is paid to someone that you designated. Most bank accounts and retirement accounts are also pay-on-death. This means the owner retains complete control and ownership during life, but the account is distributed as directed upon their death.
Joint ownership and pay-on-death allow the property to “move” on its own after the initial owner passes away. But it leaves a gap in providing for the owner’s care during life. It can be challenging to gain access to those assets to provide for the owner’s medical care and other bills.
A trust is a fourth way to hold title which can address this gap. In this way, the trust is the titled owner of the property. When the original owner becomes unable to care for him or herself, the trust is passed seamlessly to his or her successor. Then, without the hassle or delay of court, the successor can manage those assets for the original owner’s care and needs. Additionally, when owned by a trust, your assets do not become subject to the debts or liabilities of your successor.
A trust is not the only solution for managing assets, which is why I want to be clear that there are many ways to hold title to an asset. In determining how to hold them, you should consider issues of control, access, and incapacity planning. Focusing only on how an asset moves after you have passed away misses how the way we own property affects us every day.