Forms of Property Ownership: An Important Feature of Your Estate Plan or Business Organization
Updated: Jul 9
This post should not be construed as legal advice.
Many people often think that an estate plan is just a will, but it is much more than that. Your estate plan will typically include documents and tools that distribute your property according to your wishes at your death. One way to potentially accomplish this is through titling property effectively. Using the right title with property is one way to distribute property on your death.
In the law, title has a specific definition and means the legal evidence of a person’s ownership rights in property (Black’s Law Dictionary). You can own two forms of property: 1) real property and 2) personal property. Real property is land and anything growing on, attached to, or erected on it. For example, your farmland, crops growing on the farmland, and any barns on the farmland would be considered real property. Personal property is a movable or intangible object subject to ownership and not classified as real property. For example, personal property would include farm equipment, tools, or company stock you might own.
Typically, individual ownership is the common way property will be owned, but co-ownership forms do exist and will be useful in the estate planning process. Individual ownership is often referred to as fee simple ownership. Fee simple ownership gives the owner complete control over the property, and the owner can dispose (sell, gift, or leave in a will) the property at any time. Fee simple ownership can be limited by the government through taxation, police power, eminent domain, and escheat.
A life estate is possessive right in property and not technically a true form of property ownership. In a life estate, an interest in property is transferred to another person (life tenant) for the duration of the tenant’s life. Upon tenant’s death, the property would go to a remainderman, the person who takes ownership of the property at death. The life tenant’s interest in the property would pass to the remainderman outside of the probate process.
Forms of Co-Ownership
Co-ownership is where more than one person may own a piece of property. Not all forms of co-ownership are equal, and each will have an impact on your estate plans. Co-owners will each be able to access the property and will not be able to exclude each other. Co-owners can demand an accounting of the profits from the property, such as demand an accounting from other co-tenants for improvements made to the property, rents paid to a co-tenant, or profits received by a co-tenant. Co-owners are also required to contribute to the costs of owning the property (such as pay taxes and other costs). The forms of co-ownership we will discuss are 1) tenancy in common, 2) joint tenancy, and 3) tenancy by the entirety.
Tenancy in Common: A tenancy in common will require two or more owners called tenants in common. Each tenant in common will hold an undivided interest (meaning they own a part of the total value of the property) in the co-owned property. Although each tenant in common will hold an undivided interest, they may have unequal rights in the property. For example, Stacy and Sarah are tenants in common to Blackacre, and each holds an undivided interest, but Stacy could potentially own a 60-percent interest in the property while Sarah owns a 40-percent interest in the property.
Tenants in common have the ability to sell, give away, or transfer their interest to any person (including another co-tenant). Tenants in common hold no right of survivorship, meaning that when one co-tenant dies, his/her interest passes to his/her heirs (either by will or by intestate succession).
A tenancy in common will typically be created through language such as “to A and B.” The language creating the interest is important. A tenancy in common can be destroyed seeking a partition of the property through a court. A partition of the property is where the property is divided up among the co-owners based on their ownership interests. From our previous example, Stacy would end up with 60 percent of Blackacre and Sarah would end up with 40 percent. If a partition of the property is not possible, then a forced sale may be required.
Joint Tenancy: A joint tenancy is a form of co-ownership where the co-owners (called joint tenants) have an undivided interest in the property and have a right of survivorship. Unlike in a tenancy in common, each joint tenant will own an equal share of the property. A joint tenancy can be broken for one of the co-owners if the co-owner transfers the interest to a third party. For example, A, B, and C own a farm in joint tenancy. C is in need of money and sells his interest to P. A and B would still be joint tenants in the property and P would be a tenant in common with A and B.
This property interest will pass to the surviving co-owners outside of probate process or even what your will says — for example, if a father and son own a farm in joint tenancy. Son unexpectedly dies first and leaves his entire estate to his wife in his will. The farm owned in joint tenancy would pass to the father regardless of what the will says because of the right of survivorship. The father would now own the farm in fee simple ownership and could include who inherits the farm upon his death.
This form of co-ownership is common with property owned by husband and wives or a parent and child. To form a joint tenancy, the language needs to be clear such as “to A and B as joint tenants with a right of survivorship and not as tenants in common.”
As with a tenancy in common, a joint tenancy can be destroyed by seeking a partition of the property through a court. If the partition is not possible, then the court could potentially require the owners to sell the property.
Tenancy by the Entirety: A tenancy by the entirety is similar to a joint tenancy but can only be created by a husband and wife. Husband and wife would each own an undivided interest in the property and have the right of survivorship. Creditors of individual spouses cannot force a sale of an individual spouse’s interest. A tenancy by the entirety would be destroyed by divorce of the parties.
In Maryland, all property held by a married couple is presumed to be held in a tenancy by the entirety. This presumption can be overcome by including language to create a joint tenancy or tenancy in commons. Husbands and wives may consider doing this for estate planning reasons.