Most people know that buying a home or investment property is a wise financial investment. However, many people overlook how these properties are titled and the effect on their financial situation. Complications can arise when an individual has properties and assets that are titled incorrectly. There are also significant tax benefits to be gained (or lost) depending on the characterization of those assets.
In order to avoid complications, it’s important to be familiar with the different classifications of ownership.
Types of Property Ownership
- Joint Tenancy: Ownership expressly created in two or more natural persons where four characteristics are present. The interest must be created at the same time, in the same instrument, equal and undivided interests in each owner, and equal rights to possess the property. At death, the interests of a deceased owner pass to the remaining owners.
- Tenancy in Common: Ownership in two or more legal entities where one of the four characteristics mentioned above is not present. After the death of an owner, the interest of the owner passes to his or her estate, not to the remaining owners.
- Common Property: Property owned by a husband and wife, acquired during the marriage with community funds (i.e. with the money owned by both spouses). After one spouse dies, the property must go to probate. It does not automatically go to the spouse.
- Community Property with Rights of Survivorship: Property owned by a husband and wife as community property which, after the death or either spouse, passes to the survivor in the same manner that joint tenancy would pass. The advantage is that after the death of one spouse, the other gets a “double stepped up basis” regarding taxes.
Entities Owning Property
- Individuals: Any person is capable of holding title to real property, including minors.
- General Partnership: An association of two or more partners whereby each partner has the full authority to act on behalf of, and bind, the partnership assets or other partners. Each partner shares equally in the profits and liabilities of the partnership business. The partnership does NOT have to be filed with the Secretary of State.
- Limited Partnership: An association of one or more general partners and one or more limited partners. Each shares in the profits of their respective interest in the partnership. General partners are liable for partnership debts, while limited partners are liable for debts only to the extent of their investment in the partnership. General partners are authorized to act for the partnership. Limited partners do not have the authority to make decisions on behalf of the partnership.
- Corporations: The most predominant form is the private corporation, which is owned by stockholders. Major corporate decisions are made by the Board of Directors. The day to day business of the corporation is controlled by the officers of the corporation. The owners are protected from liabilities of the corporation in that stockholders are liable for debts only to the extent of their investment in the corporation’s stock.
- Limited Liability Companies (LLC): LLC’s are comprised of members similar to stockholders. The affairs are controlled by a manager or managing member. The company has the same protection from debts as does a corporation. It has the benefit of being taxed as a partnership would be.
- Trust Agreements: A trust agreement cannot hold title to a property. Title must be held in a trustee, who has fiduciary duties to deal with trust property with a high degree of care and for the benefit of the beneficiaries.
If you’re interested in learning more about title insurance or purchasing a policy, contact Nevada Title at 702.251.5000.