In North Carolina, property owners may hold joint title to real property as Joint Tenants With Right of Survivorship (JTWROS), Tenants in Common (TIC), or Tenants by the Entirety (TBE). A deceased owner’s interest in property held as JTWROS will pass outside of probate directly to the surviving owner(s) upon an owner’s death. A deceased owner’s interest in property held as TIC is subject to probate and passes according to the terms of the decedent’s will or the laws of intestacy. The surviving owner(s) of property held as TIC might be forced to sell the property in order to provide the deceased owner’s heirs their share of the property interest. TIC also allows an owner to sell their interest in the property without the consent of the other tenants, which can create complications for the other joint owner(s).
Tenancy by the Entirety is only an option for married couples and provides for similar distribution upon the death of an owner as JTWROS, with the deceased owner’s interest passing automatically to the surviving owner upon death. However, in North Carolina, TBE offers additional creditor protections to real property, as creditors of only one spouse cannot reach the property. As of January 1, 2015, this protection extends to TBE property that is transferred to spouses’ joint or individual trusts as long as both spouses remain beneficial owners of the trust(s).
The benefits and disadvantages of titling choices should be reviewed carefully with an estate planning attorney to determine if the manner of titling aligns with an individual’s testamentary goals. Here are a few important questions to ask:
- Who will own the property if one of the owners dies? If a brother and sister jointly own a property and the brother wants his adult child to inherit his interest in the property, this will not be accomplished if the property is held as JTWROS. In order for the adult child to receive his interest, the brother would need to hold title with his sister as Tenants in Common and leave explicit provisions in his will distributing the property interest to his adult child. (Without these provisions, if the brother marries or divorces, intestate succession laws could apply and transfer the property interest to a spouse.) Another way to ensure the child receives the property interest is to hold the property in trust. A trust document can be structured to benefit the brother and sister, name and provide instructions for future beneficiaries, protect the property from beneficiaries’ creditor claims, and allow the property to pass outside of probate.
- What if one owner is involved in a lawsuit? Judgments imposed on an owner might attach as liens to the property depending on how title is held. One of the benefits married couples enjoy through Tenancy by the Entirety is that a judgment against one spouse will not attach to the property. However, the property might be at risk to claims jointly pursued against both spouses. Properties held as JTWROS and TIC could be vulnerable to a judgment against an individual owner.
- Are there gift tax consequences if the sole owner of a property chooses to add a joint owner? If the individual added as joint owner is not married to the other owner, the transaction might be recognized as a gift for tax purposes. Prior to changing how title is held, a property owner should consult with an attorney experienced in tax law to discuss potential transfer taxes that might result.
Individuals who are concerned about including real property in their estate plans should itemize properties for review during their next planning session. Understanding the characteristics of different methods of real estate titling not only helps plan for existing property distribution, but also for acquisition of future investments. Home sales in North Carolina were 17% higher this past July than at the same time last year. Home sales do not exclusively include primary residences. The National Association of Realtors reported that vacation home sales rose more than 57% in 2014. A consultation with a tax and estate planning attorney can help ensure an optimal title choice is made prior to acquiring property.
By Attorney Samantha Reichle