Property Ownership Types You Should Know About

Most people have a narrow view of real estate, assuming there is only one way around ownership. There are different types of real estate ownership, each with pros and cons. These approaches to ownership have legal and financial effects on transfer, financing, collateral considerations, and taxation. It depends on the individual’s situation and preference for their preferred option. The most popular include sole ownership, joint tenancy, tenancy in common, trust ownership, and community ownership.

Sole Ownership

Also known as sole ownership, this may be characterized as an individual being legally capable of holding the title. A single or married person may hold it, provided the property is apart from their spouse. Typically, sole proprietorships are great because of the ease with which transactions can be done. No other entity is required for consultation on transactions regarding the property records. They also do not usually incur any corporate business taxes and do not require filings on an annual basis. It is also not restricted in the way other formal property ownership structures are.

On the other hand, there are legal issues concerning the transfer of ownership. That is especially true if the sole owner is imprisoned or dies. Unless there is a will, the transfer of ownership can be quite tedious. Raising money to a level where one can afford sole ownership is also difficult. The other thing is paying property taxation for all assets records declared under sole proprietorship. 

Joint Tenancy

Joint tenancy is a type of property ownership where two or more individuals hold the title to the estate but share the rights equally. This would last a lifetime, so if one of the partners dies, their ownership rights will pass to the surviving tenants. This law is known as the right of survivorship. One of the benefits of this is neither party would need to be related or married.

Ownership is also passed on to the surviving tenants should the other pass on, which avoids the case of probate even if there is no will. Responsibilities, including financial burdens of the property, are also shared among the tenants. As co-tenants possess equal shares of the property, all parties are incentivized to do their part regarding the protection of the investment. However, if a co-owner loses their ability to make revenue or runs into difficulty, other parties in the agreement would have to take up the slack by continuing to make all of the payments. 

Tenancy in Common 

Tenancy in common refers to a common arrangement with more than one owner with equal or different shares when it comes to the property. Tenants cannot claim a portion according to their investment, though, as they all have rights to the entire property. The tenants included in this property approach may also change due to the death of any of the tenants or if a sale occurs. 

One of the benefits of this arrangement is it is not necessary to provide funds for a share of the property. Rather, each owner can have a different percentage of the property but still be able to utilize a larger resource. Similarly, owners may decrease or increase as time passes, considering tenancy is flexible depending on the number of property owners. That said, one of the disadvantages is an owner may sell without having to consult other owners. There is also no right of survivorship in this type of ownership. That means the ownership interest of the deceased owner will not go to other property owners, as is the case in joint tenancy.

Trust Ownership

Legal entities known as trusts may also own properties. In so doing, they own the properties and are managed by a trustee. This individual works as a representative of the beneficiaries of the trust. This approach to property ownership can protect your assets against claims and preserve beneficiary inheritance. That implies one of the main benefits of trusts: protection against creditors.

When assets are moved to a trust, they are no longer owned by the individual. It also protects beneficiaries from the probate court. That is a process by which the court makes certain that all debts are paid upon death. Aside from being very expensive, probate may also take a long time to decide. However, trusts also have a negative side. When assets are held in a trust, there is less freedom regarding what can be done with them. Trustees are also required to comply with particular duties when dealing with assets. Similarly, trustees face disclosure obligations to beneficiaries concerning the available trust assets. 

Community Ownership

This ownership style is utilized by spouses during their marriage, entailing what they intend to own. According to the community property regulations, each spouse owns everything in equal measure. That is regardless of who earned or spent the funds. Depending on the community property laws in your residence, real estate purchased within the bounds of marriage can also be held in this way.

The benefit is that the couple shares earnings and debts as a corporation. There is less responsibility on one person’s shoulders. On the other hand, if one of the partners incurs a debt and passes away, the responsibility for payment will rest on the other one. That said, community property with the right of survivorship is one of the main ways couples hold title to property in states like California, Nevada, Arizona, Texas, and Wisconsin.  

Which is the Best for You?

Property ownership approaches solely depend on what works for you. There is freedom to choose the option that caters to one’s interest based on finances and legal ramifications. However, some options are more suited for individuals who are married or have significant capital assets. For example, sole ownership would be appropriate for those seeking freedom. Trust ownership is also suitable for individuals who want to secure their children’s inheritance. Joint tenancy and tenancy in common are the middle ground as they entail collaborating parties in ownership. To determine the best option for you, check out our tools or guides for more information.