In estate planning, wills and trusts aren’t everything.
Homeowners who want to be sure the home passes to the desired beneficiary must be sure the property is correctly vested.
Consider a common example. If you co-own property with a right of survivorship, your interest cannot be willed to any other party. The person who survives automatically acquires rights in your interest.
Here, we review this and other consequences of the vesting of real estate.
When the deed only names one person, real property is held by a sole owner. No vesting is needed on the title and deed. When the owner passes away, the home becomes probate property, to be distributed to the will’s beneficiaries.
If the sole owner leaves considerable unpaid debts, an executor may be obliged to sell the property. If the will bequeaths the home to multiple beneficiaries, the executor may need to sell it to divide up its value.
Joint Tenants with Rights of Survivorship
If the deed vests real property in two or more individuals as joint tenants with rights of survivorship (JTROS), there are co-owners with equal shares. This is a highly popular vesting choice, especially among couples.
As one of these co-owners, you cannot leave your share in your will. The property will not be probated. The surviving co-owner automatically has rights of ownership. If there are multiple surviving co-owners, they all get the property, in equal shares.
If the deed vests owners as joint tenants, their joint tenancy can also be broken by a deed. Even one joint tenant, by conveying their share, converts a joint tenancy into a tenancy in common. Under state law you may also be able to break a joint tenancy by conveying your deed from yourself to yourself.
Tenancy in Common
Two or more co-owners can vest their property as tenants in common. These owners may will their property to others, and the property is probated when an owner dies. The beneficiary named in the will becomes a tenant in common with the property’s other co-owner(s).
Unlike JTROS, tenancy in common can work well with a business as co-owner. Spouses can also hold individual ownership interests as tenants in common, if they intend to will their interest to a third person. The surviving spouse may use a quitclaim deed to release their rights to what the spouse held, then vest in the property separately.
Percentages need not be equal. Remember to designate each owner’s percentage of interest on the title if the intention is to vest unequal interests in the co-owners.
In a community property state, real property acquired by married people is deemed part of the marital community. It belongs to both spouses in equal shares. To vest a home as community property, both spouses must sign the deed. Each then holds an equal, transferable interest in the real estate.
Divorced partners each retain an interest in the home—unless and until one signs a quitclaim deed.
There are no rights of survivorship. Probate is required. Each partner may will their interest to others, and the beneficiaries will then co-own with the surviving partner as tenants in common. If the deceased partner did not will their interest to a third party, then the surviving partner acquires that additional interest (written as “ownership in severalty” or “sole and separate” ownership).
Community Property with Rights of Survivorship
If allowed under your state law, this vesting names both spouses on the deed, identified as owners of community property with rights of survivorship. This vesting borrows an element from joint tenancy to avoid having the home go through probate. The deceased spouse’s interest automatically vests in the surviving spouse, in addition to the interest the surviving spouse already owns (“in severalty” or “sole and separate” ownership).
One spouse may sign a deed to oneself to break the vesting, converting the spouses into tenants in common.
Notes on Conveyances Through a Trust, Deed, or Will
You may put a home, even one with a mortgage, into a living trust. In contrast to a will, a living trust goes into effect while the settlor (the person establishing the trust) is alive.
- You can use an irrevocable trust to avert probate and estate tax. Not that this also restricts your ability to sell, refinance, or tap your home’s equity while you are alive.
- With a revocable trust, a beneficiary’s right to acquire your home is subject to change or amendment by you. Therefore, as with a will, a beneficiary has a mere expectancy of a future inheritance, not a vested right. After your death, the living trust and the beneficiary’s rights become irrevocable. There is no probate of a living trust. But there may be a pour-over will that transfers assets—acquired during the settlor’s lifetime—into a trust.
Certain states allow transfer on death deeds for real estate. The recording information on the deed identifies the intended beneficiary. A signed, notarized affidavit of death form transfers title to your chosen beneficiary.
If your property goes through probate, including a testamentary trust in a will can ensure that the chosen beneficiaries ultimately inherit the estate. A testamentary trust, or will trust, only comes into effect after death.
The Importance of Legal Expertise
Update your will if you have new chosen beneficiaries. If new individuals come into your life after the will is made, and you do not want them to inherit, you could make a small settlement with the desired beneficiaries, showing your clear intent to choose these specific recipients. The testator’s intent is paramount if someone feels slighted and launches a will contest.
An attorney with experience in wills and trusts can explain the probate code and beneficiary rights in your state. An attorney can also ensure that your intentions speak clearly in prenuptial agreements, deeds, wills, and living trusts.
Finally, if necessary, an attorney who handles estate litigation will know the local court procedures and best practices when taking disputes to court.