For most families, the home is the most valuable asset owned. Very few people even know how they are actually holding title to their home, let alone why they are holding title in such manner. Here are a few of the most common ways to hold title, including the pros and cons of each.
Pros: Nobody else can sell or encumber the property. An individual owner has complete control. Stability, so long as nothing ever goes wrong.
Cons: In the event of incapacity, nobody else can act on behalf of the property unless there is a valid Durable Power of Attorney giving them authority. Thus, property can sit without anyone managing the affairs for the property. And even with the Durable Power of Attorney, there is still a risk that the person acting with power of attorney could neglect, mismanage, or even sell the property during incapacity. In the event of death, the property must go through probate court to be transferred to the heirs, subjecting the property to probate and attorney fees and costs. Not to mention, probate can take too long to be resolved, and is a public process that can affect financial privacy.
Pros: Easy, and practically free to set up. Postpones probate until the last surviving owner passes away. Upon death, joint tenancy allows for an easy transfer of property, as long as there is another remaining joint tenant alive. Potential step-up in basis at time of death for surviving spouse.
Cons: Probate is only postponed, not avoided. While alive, the title holders are all dependent upon each other for the management of the property because each owner has a right to ownership. Property is exposed to co-owner debts and potential liens. Most surviving spouses or co-owners end up dying before ever adding another joint tenant to the title, thus subjecting the property to probate court and costs, and attorney fees. If all of the owners pass away together, the property will be subjected to probate. There is also a potential for unintended disinheritance when a surviving spouse chooses to dispose of the property in ways that do not include the deceased spouse's heirs.
Pros: Least restrictive method of holding property. Diminished potential for disinheritance, as compared to joint tenancy. Can divide proportional ownership shares, as needed. Each tenant-in-common can dispose of their share of the property or encumber it, without the consent of the other remaining tenants-in-common (but this cuts both ways).
Cons: Less restriction also means less assurances and stability. Same incapacity issues as described in the joint tenant section above. Each tenant-in-common can dispose of their share of the property or encumber it, without the consent of the other remaining tenants-in-common. If a tenant-in-common doesn't want to sell, they can be forced to sell the property by the other tenants-in-common after application for a partition action in court.
Pros: Right of survivorship similar to joint tenancy (see above), so long as there is no Will in effect. Postpones probate until the surviving spouse finally passes away. Allows for disposal of property by a spouse prior to right of survivorship kicking in, so long as the spouse has created a Will.
Cons: Right of survivorship might not be what is wanted. Potential for unintended inheritance is heightened. A portion of the property can eventually be owned by owners that are not desirable to the surviving spouse. Property can get locked up in gridlock and potential for costly lawsuits. Incapacity issues are similar as those described in Joint Tenancy section above.
Pros: Maximum control and flexibility. In almost every case, the cost of setting up the trust is much less expensive than the cost of probate. In almost every case, the time it takes to set up the trust is less than the time taken by probate process. The trust process is private and will not subject anyone to a public proceeding. Owners still have full control and management of the property. In cases of incapacity, the successor trustee named in the trust can act, if needed, and will owe a fiduciary duty to the named beneficiaries, as chosen by the owners. Upon death, the property will not need to go through the probate process. Any successors are legally obligated to follow the instructions set forth within the trust.
Cons: A few hours to set up initially. Frontloaded cost.