When you purchase a home you need to consider how you will take ownership of the property. Holding title is the term often used when discussing the ownership of real property. Sometimes it will be referred to as Tenancy
At closing, you are transferring tenancy from the seller to the buyer. The title of a home is transferred as part of a deed that is recorded at your local Massachusetts Registry of Deeds. There will need to be at least one person if not more named on the deed.
How you hold a title on your new home is more important than you may think. And often is just a secondary thought at the closing table.
Your property ownership dictates your ability to sell or mortgage a home, your liability and how your home is handled by your estate upon death.
It is important to talk to your real estate attorney, your accountant and your estate planner about how best to take hold title on your home. Specifically when more than one owner is involved.
What is The Difference Between A Deed And A Title?
A deed is a physical document that transfers the ownership of real property.
Whereas the Title is more conceptual as it describes the legal position regarding the ownership of the property. The title is the legal structure in which the ownership is held. How you hold the title of property gives you certain rights. And those rights will vary depending on how it is held.
Four Basic Property Ownerships in Massachusetts
As a homeowner, you will find there are four basic ways of holding a title in Massachusetts. While there are other forms of property ownership we are going to just look at what a typical homeowner will consider when buying a home.
- Tenants in Common
- Joint Tenants
- Tenants in the Entirety
Individual or Sole Ownership
When a property is held as individual ownership the title is in one person’s name. It is the only tenancy available to an individual purchasing a home.
Generally, a single person would hold a property individually. Or if they are married, the individual decides to hold the title apart from a spouse.
Individual ownership is easy. You do not need to answer anyone else. The one downside is that even if there is a will the estate may have to be probated.
Tenants In Common vs. Joint Tenants vs. Tenants in the Entirety
The next three types of property ownership are for ownership that involves more than one person.
And for non married owners and sometimes even married owners the question lies with what is the best way to take ownership of a co-owned property? Tenants in Common, Joint Tenants or Tenants in the Entirety?
There are differences between each and it is critically important to discuss with an attorney on your personal circumstances and goals in how you hold the title.
Tenants in Common
With tenants in common, one or more individuals own the property. It can be equal shares or unequal shares. But all individuals share in the use of the property equally regardless.
If the shares of ownership are shares are in financial terms regarding ownership only.
Unmarried owners, siblings or divorced couples that have remarried are all candidates that would want to consider holding title as Tenants in Common.
Tenants in Common the shares are severable, meaning independent of the other shares. Upon death the shares in the property pass to the owner’s estate, not the other owners. A tenant in common can also sell or give their portion of the property away at any time without permission of the other owners.
Tenancy as Joint Tenants can also be referred to as Joint Tenants with Rights of Survivorship is meant for two or more owners of a home. You will see unmarried couples and family members choosing Joint Tenants for their ownership of a home.
There are two big differences between Tenants in Common and Joint Tenants.
First, ownership has to be equal. Each owner can sell or give away their share without the others permission while breaking the rights of survivorship.
Second, upon death, your ownership automatically passes to the remaining owners. Thus, the rights of survivorship. Having a will, naming another party as the recipient of your share of a home, does not override, the Joint Tenant ownership.
One downside is if one party is sued and the creditor goes after the home then all owners share in the liability.
Being Joint Tenants as well as Tenants in Entirety will avoid having a home being probated and is often used as an estate planning strategy.
Tenants By Entirety
It also prevents the creditors of one to go after the house and removes the liability of one from the other.
Another type of tenancy involving co-ownership is a Life Estate. This is where an owner of a home becomes a life tenant and they give ownership to a remainderman.
The difference here is there is a separation between ownership and possession. The life tenant had ownership and possession the remainderman has ownership only. The life tenant cannot sell the property but the remainderman can sell their interest.
The Life Tenant is responsible for maintaining and paying for the property and when the Life Tenant passes on the possession and the ownership of the Life Tenant passes to the remainderman.
Often an aging parent will create a Life Estate so the property transfers to a child upon death. It is used as an estate planning strategy and specifically for Medicare planning.
Tenancy Is More Complex Than You May Think
This is a simplified overview to get you thinking about how to take ownership of a home. Each ownership option definitely has its pros and cons which are not covered in depth here. How you take ownership effects:
- Your rights as an owner
- Protection against creditors.
- Future tax liabilities for your estate.
- How and to who the property transfers upon an owner’s death.
There are many subtleties to how you choose to hold a title on a home. Also, laws regarding property ownership can vary from state to state.
Make sure you have advice from the appropriate professionals when it becomes time to choose how you will hold title.
Other Real Estate Resources
- Buying a house is a big deal. Whether you are a first-time home buyer, a downsizer or a move-up buyer it is important to have a good overview of how to buy a house.
- Now that the housing market has cooled down in some areas it is important to talk about the importance of a mortgage contingency. Learn why you should never skip your home inspection.
- And while we are on the topic of home inspections….. Realize there are certain limitations to home inspections. The first is a home inspector cannot comment on what he can’t see.
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