How Should You Hold Title to Your Home?

When you buy a home, you’ll choose the manner in which your title is held, also known as “title vesting,” which refers to your legal rights to the home you own. Title vesting affects your legal right to sell or refinance your home and what happens to the property after you die. Understanding how you should hold title to your home will help you choose the right vesting so your wishes for the home are followed after you pass away.

What is property title?

Property title is official legal ownership in a home, giving homeowners the right to use their property as they wish. Once you have property title, you can make changes to the home, or transfer some or all of your ownership (or “interest”) to someone else.

Why title vesting is important

The manner in which your title acts like a road map for others to know what should happen to a property should one or multiple owners pass away. Here are some key reasons vesting in real estate is so important:

It directs the payment of home sale profits after you die.  Title vesting provides heirs with guidance about how the funds from the sale of your home will be divided after your death.  If you have a trust or a will, you can allocate a certain percentage of funds to different family members.

It indicates what happens with the property after your death. Title vesting provides guidance to survivors about what should happen to the property after one or several owners die.

It determines who gets tax benefits if one owner dies. Title and interest to the property can be divided up unevenly with some types of vesting, which can create issues leading to court battles if the details aren’t spelled out.

It may prevent probate. Choosing ownership vesting is one way to avoid probate, which involves a court deciding how to transfer ownership after the current owners die. It’s important to either add heirs with rights of survivorship to title before you die or have a trust prepared that outlines your last wishes to provide additional details to avoid any arguments over who is entitled to interest in the home.

5 different types of title vesting

Choosing the manner in which your title is held gives you certain rights while you own the home and provides direction for what happens if you or another owner dies.  The right title vesting depends on why you’re buying a home, what you’re using it for and what you want to happen to the property when you die.

Here are some of the most common types of title vesting:

1. Joint tenancy with right of survivorship (JTWROS)

This is often a common vesting for married couples, but it also applies to family members planning to own a property together. Joint tenancy with rights of survivorship gives everyone equal ownership rights that automatically pass on to survivors in the event of an owner’s death. One important fact about JTWROS vesting: You can’t divide up the ownership unequally.

Homeowners sometimes mistakenly assume the owners have to be married for this JTWROS vesting. However, that’s not true, and any number of persons can own the property together.

2. Community property with right of survivorship

This type of vesting is only for married couples. It’s critical to disclose your marital status with title vesting in any form to avoid the possibility of giving up property rights to a future ex-spouse in divorce court if you purchase a property without disclosing you are married.

Marital status disclosure is especially important if you live in one of the nine community property states in the U.S. — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In these states, community property laws could dictate who gets what real estate in the event of a divorce.

 Learn more about how to remove a name from a mortgage without refinancing.

Important tip about quitclaim deeds and divorces

Divorcing spouses often mistakenly believe a quitclaim deed removes them from responsibility for a mortgage on a home that was owned jointly during marriage. However, unless the existing loan is refinanced or assumed by the spouse that has been awarded the home, both spouses are legally obligated to pay the mortgage. This means if one spouse is late on payments, it could affect both spouses’ credit ratings.

3. Tenancy in common

Tenancy in common allows you to divide up the interest unequally between any number of people. Because you can negotiate how much interest you have based on the criteria you set, you may see this type of vesting with legacy homes like family cabins or beach houses.

You’ll need to divvy up the tax benefits of ownership and decide who pays what percentage of the property tax bill.  Make sure you have some written record of your agreements: Your local treasurer’s office won’t divide up property tax bills like a restaurant order, and the IRS usually doesn’t get involved in deciding on who gets the tax write-offs related to homeownership.

When a tenant in common dies, property rights don’t automatically go to the other owners, which makes it especially important to create a will after buying a home vested with tenants in common.  It either goes to the deceased owner’s heirs or to a probate court if there’s no will it could end up passed on to the deceased owners’ heirs or determined in probate court.

4. Sole ownership

With sole ownership, one person owns all rights, title and interest to the property.  And it’s not just for single people: A married person can hold title “sole and separate” from a spouse, meaning the spouse doesn’t lay claim to ownership of the property.

If the sole owner dies, the property is passed on to heirs listed in a will. If there’s no will, a probate court determines how it will be transferred.

5. Living trust

A living trust is a written legal arrangement that outlines what will happen to the interest in the property if one trustor dies. Having a living trust lays out a clear path, in writing, of your intentions for how real estate you own should be handled after you die. While title vesting gives an indication of your wishes, a living trust provides clear specific details to avoid confusion among heirs about how property rights are to be handled upon your death.

An important lending tip about trusts

Mortgage lenders only allow you to hold title in a revocable trust. The term “revocable” tells lenders you can amend or revoke the trust while you’re alive, which means you have full control over the assets included in the trust (in this case, your home). With an irrevocable trust, someone else controls the trust, which means lenders can’t foreclose on a mortgage if you default.

Pros and cons of different title vesting types

Once you know the common methods of holding title, it’s time to choose the type of title vesting you want to use. The table below summarizes the pros and cons of each title option.