Over the course of your lifetime, you will likely co-own property with someone. If you marry, you may purchase a home that you want to title in both your name and your spouse’s name. If you own a business, you may also decide to purchase real property with a business partner. You might also decide to invest in property with a sibling, adult child, or close friend. As the Indianapolis estate planning attorneys at Frank & Kraft explain, the way you hold that joint title is more important than you may realize.
Why Is the Type of Title Important?
You may not give much thought to how you hold jointly owned property – in fact, you may not even know what type of joint ownership you have. The type of joint title you choose, however, may impact your own rights to the property as well as put your interest in the property at risk. Along with other factors, your relationship with your co-owner will likely play an important role in deciding which type of joint ownership to select.
Types of Joint Ownership of Real Property in Indiana
State law dictates what types of joint ownership will be recognized within the state. At the time you purchase real property, you should be asked which type of joint title you plan to use if you purchased the property with one or more additional owners. Indiana recognizes the following types of joint ownership:
- Tenants in Common. Tenancy in common is typically the default type of joint ownership for real property, meaning that if the ownership instrument is silent regarding the type of joint ownership, the law will presume you hold it as tenants in common. With a tenancy in common, each owner owns a separate fractional share of undivided property. In addition, there is no limit to the number of owners and owners can own differing shares of the property. As a tenant in common you can sell, mortgage, transfer, or assign your share of the property without the consent of the other owners. Your interest in the property will become part of your probate estate after your death if you hold the property as a tenant in common. Both features can put your interest in the property at risk.
- Joint Tenants with Rights of Survivorship. If avoiding probate is an important goal, titling property with rights of survivorship is likely your best option because property held as joint tenants with rights of survivorship (JTWRS) does not become part of probate after the death of a co-owners. As such, the decedent’s interest passes automatically to the surviving owner(s) outside of the probate process. Along with making it much easier to pass your ownership interest to loved ones, this feature also means the value of your interest in the property is not included for federal gift and estate tax purposes One downside to holding property as JTWRS is that an owner cannot sell, transfer, mortgage, or otherwise encumber the property without the consent of the other owner(s). The other disadvantage to owning property as JTWRS is that creditors of one owner can still reach the property to pay off debts of another owner.
- Tenancy by the Entirety. Only married couples are allowed to co-own property as “tenants by the entirety” in Indiana. Your spouse must agree to a conveyance if you hold property as tenants by the entireties. One of the biggest benefits to titling property as tenants by the entirety is that the tenancy cannot be divided to repay debts of one owner. In other words, a creditor of one spouse cannot get to the property. When either spouse passes away, the surviving spouse automatically becomes full owner of the entire interest in the real estate because the right of survivorship is inherent in this type of joint ownership. In essence, owning property as tenants by the entirety gives you all the benefits of JTWRS plus additional benefits in the form of protection from creditors.
Contact Indianapolis Estate Planning Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns regarding how best to hold title to jointly held property, contact the experienced Indianapolis estate planning attorneys at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
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