If you own real property, and you want to keep that property out of probate after you are gone, creating the right type of co-ownership with your adult child may be a viable option. While you will get probate avoidance benefits by creating a joint tenancy, there are other factors you should consider before using that strategy for your real property. An Indianapolis estate planning attorney at Frank & Kraft explains the best way to co-own property with an adult child in Indiana.
Does It Matter How Property Is Titled?
The manner in which jointly held property is titled is not something most people think much about – but they should. Not only can the type of joint title you choose impact your own rights to the property while you are alive, but it can also potentially subject your interest in the property to unnecessary risks after you are gone.
Types of Co-Ownership for Real Property in Indiana
Joint ownership of real property is governed by state law, meaning each state decides 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. The types of joint ownership recognized by the State of Illinois include:
- Tenants in Common. Tenancy in common is the default type of joint ownership for real property owned by a parent and an adult child. This means 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. The most important benefit to holding property as joint tenants with rights of survivorship (JTWRS) is that your interest in the property does not become part of your probate estate after your death, making it the preferred method of passing on real property to adult children. Instead, your 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. For this reason, spouses often title property as tenants by the entirety as part of an overall probate avoidance strategy; however, it cannot be used to co-own property with an adult child.
Contact Indianapolis Estate Planning Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns regarding the best way to co-own property with your adult child, contact the experienced Indianapolis estate planning attorneys at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.