Even though we don't normally think about it, we own the things we buy, inherit or receive as a gift, under one of 7 different legal forms of ownership. This includes everything, not just the more valuable assets such as your home, car, boat, bank accounts, stocks, bonds, rental real estate, etc.
The precise form of ownership is established when you purchase the item, set up the bank account, or transfer ownership. For your more valuable items, it is shown on your property deed, ownership title, account papers, trust document, etc.
Different forms of ownership can produce very different financial results often with a very significant impact on income taxes, gift taxes, estate taxes and probate expenses for both you and your heirs. For more information, including the advantages and disadvantages of each form, talk with your tax attorney or other trusted financial advisor. This is especially important if you want to transfer ownership of something you own to someone else.
In brief, here are the 7 most common forms of ownership:
You are the only owner of the asset.
You own an asset along with one or more other people. Each of you has an "undivided ownership interest" in the property. Everyone has an equal right to use the property.
Each joint tenant has the right of survivorship. That is, upon the death of one owner, full title in the property is transferred to the survivor without going through probate.
Tenancy by the Entirety
You own the asset along with your spouse as Tenants by the Entirety. Upon the death of one, the other has title (right of survivorship) without going through probate. Tenancy by the entirety is used in many states and is analogous to "community property" in the eight states that recognize that type of property ownership.
Tenancy in Common
You own an asset along with one or more other people. Each of you has an "undivided ownership interest" in the property. Everyone has an equal right to use the property, even though the actual percentages of ownership may not be equal.
There is no right of survivorship if one of the owners dies. Each ownership interest may be separately sold, mortgaged or willed to another person. If an owner dies, the property must go through probate to transfer the property interest (ownership) to its rightful new owner(s) which may, or may not, be the other tenant in common.
Property and profits received by a husband and wife during their marriage, if they live in: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, or Washington. Inheritances, specific gifts to one of the spouses, and property and profits clearly traceable to property owned before marriage, is all separate property, not community.
Upon divorce, community property is divided equally without regard to fault. If one spouse dies, all of their community property goes to the other in most states.
Your Will transfers ownership of the asset to a trust upon your death, but the trust is not in effect now.
You have already transferred ownership of the asset to a Trust that is in effect now. In many cases, you can continue to use the asset, or to receive income from the trust, or both. Property owned by the trust does not go though probate.
You have transferred ownership of an asset to someone else, but through a Life Estate, you continue to enjoy full use of the asset for the rest of your life. Most often, a life estate is retained by a parent who transfers ownership of a property (typically a home) to a son or daughter.
All 7 forms of ownership are not available in all states. If you have questions about which ones are available, or are best for you, consult with an attorney. This can be especially important if you plan to move to another state when you retire.