In prior articles I’ve shared with you some information about the importance of estate planning for “non-traditional families”. This article is specifically covering the impact of owning real estate with another person who is not your spouse and the importance of addressing those ownership interests in your estate plans.
I see the scenario quite often where two people are not married, possibly living together and decide to purchase real estate together. Each has decided to contribute to the purchase of the new property and start building a new life together. One of the first questions we need answered when we sit down to discuss an estate plan for either one or both of these individuals: “how do you hold title to your real estate?”
Most of the time when you are purchasing real estate you are working with a realtor, bank and closing/title company. They each have their area of expertise. However, none of them are licensed to provide you legal advice as to the best way to take title to that new piece of real estate and what that means to your estate plan. None will be discussing with you what you want to have happen to your interest in that property if you were to pass away or if the party you are purchasing with passed away.
The language in the deed is important depending on what you want to have happen with the property. If you purchase real estate with another person and you own the property as “joint tenant” that means if one of you passes away, the entire piece of property belongs to the survivor. The last man standing concept. This may be exactly what you intend, but it is important to understand the impact of this language.
In the alternative your deed may not indicate “joint tenancy” but instead list ownership as “tenants in common”. If you pass away still owning this property with another person your ½ interest is preserved. That means that your heirs or whoever you have listed in your Will or Trust for your estate plan will now own ½ an interest in that property with the person your purchased it with.
You can imagine some challenges that can come if you don’t plan ahead to address this issue in your estate plan. For example, Bill and Sue are not married. They have dated for many years and decide to purchase their dream home on the lake. Bill and Sue each contribute one half the cost of the purchase of the new property. Bill has a daughter from a prior marriage, Sue has two sons from her prior marriage. The deed says they are tenants in common. Bill passes away and has not done any planning related to his ½ interest. We will likely go through a court probate process to pass Bill’s ½ interest to his daughter. Now, Sue owns her dream lake home with Bill’s daughter. Who is going to pay for on-going expenses related to the property? How might property use be shared? What if Bill’s daughter lives in California and wants to sell her ½ interest and Sue does not have the financial ability to buy out Bill’s daughter. The scenario can just get more and more complicated.
The moral of the story…….it is especially important that you sit down with an attorney to review your estate plan options so that all parties understand the impact of real estate ownership with a non-spouse and what happens to that interest in the future.
Planning does not have to be complex but it is important to talk through the various scenarios that may come up and what your wishes are. There are pros and cons to all of the options. Sit down with your attorney and start the discussion so that your wishes and goals are met.
Please send me an email at firstname.lastname@example.org with any topic suggestions or requests you may have. Although we cannot give you legal advice through the column, we can provide some general information that may be helpful for you to know. Our purpose is to educate and we hope that you can take something new away from this column each time you read it.