When buying a home or investment property, you have a number of options when it comes to how you choose to own (or “hold”) the property. Depending on your specific priorities, different ownership structures can offer different benefits. In this article, we will discuss real estate ownership considerations specific to estate planning. After providing an overview of the primary options that are available in Washington, we will discuss some of the factors that you should consider when deciding how to structure ownership of your real estate holdings for estate planning purposes.
Options for Structuring Ownership of Real Estate in Washington
1. Individual Ownership
The first option – which is also the simplest option – is to simply own the property in your own name. If you are single, or if you are married but only want to have your name on the title, then you can go this route without taking any additional steps beyond those normally involved in the buying process.
But, while this may be the simplest option, it has certain drawbacks that can make it less than ideal for many individuals. For example, if you own the property in your own name, it will be subject to probate at the time of your death. Additionally, from a liability perspective, if you get sued, the property could be used to satisfy the judgment against you.
An important note about community property in Washington: If you are married, a property you buy in your own name will still become a part of your community estate (unless you have a prenuptial or postnuptial agreement that says otherwise). This means that, with some exceptions, your spouse will still be deemed an equal owner regardless of the fact that only your name is on the title.
2. Joint Tenants with Rights of Survivorship (JTWROS)
With a joint tenancy with rights of survivorship (JTWROS), two individuals share an equal and “undivided” interest in the property. This means that neither owner can sell his or her interest in the property individually. From an estate planning perspective, the “survivorship” aspect is what is most important, as it allows the property to pass automatically outside of probate at the time of one owner’s death.
This type of ownership is most common amongst married couples who want to avoid probate and who expect that the surviving spouse will continue to live on the property. For some couples, ensuring that they have a JTWROS (as opposed to a tenancy in common) will be sufficient to meet their estate planning needs. However, there are various circumstances in which other options will be more desirable.
3. Tenants in Common
With a tenancy in common, two co-owners share equal ownership rights and equal rights to occupy the property (unless otherwise agreed). Unlike a JTWROS, a tenancy in common does not establish rights of survivorship, so each owner’s interest in the property will be distributed at the time of death according to the terms of his or her estate plan.
4. A Revocable or Irrevocable Trust
Different types of trusts serve different estate planning purposes, and placing real estate into a trust can serve varying purposes as well. While a land trust avoids probate and offers certain other benefits, other types of trusts may be more suited to specific estate planning goals.
5. A Limited Liability Company (LLC), Partnership, or Other Business Entity
A fifth option is to establish a limited liability company (LLC), partnership, or other business entity to serve as the owner of a piece of real property. One of the primary reasons for forming a business entity is to establish liability protection (though not all entities offer this protection, and there are certain formalities that must be observed), and this will be the driving factor behind some people’s decision-making.
However, similar to the other options discussed above, this option has limitations as well. For example, it may be more difficult to obtain a mortgage or other financing if you are seeking to have the property owned by a newly-formed entity.
Which Option Should You Choose?
So, which option should you choose? As with all aspects of estate planning, the answer to this question depends on a number of factors that are unique to your individual, family, and financial circumstances. For example:
- Who owns the property with you? Are you the sole owner of the property? Are you married (and if so, do you have a prenuptial or postnuptial agreement)? Are you buying an investment property with family members or business partners? These are all very different scenarios that require consideration of different factors.
- What are your primary goals (related to estate planning or otherwise)? Is your primary goal to avoid probate? To make sure the property is not subject to attachment by judgment creditors? To make a future ownership transition as easy as possible? To mitigate (or avoid) estate tax liability? Weighing these considerations, among others, will help narrow down your options.
- How long do you plan to hold onto the property? Do you intend to hold the property for the remainder of your lifetime? Or, is there a chance you will sell the property in the future? This is a factor that may warrant consideration as well.
- Will you (or a member of your family) reside on the property? Why are you purchasing the property? If you (or a member of your family) will reside on the property, this opens up one set of options. In contrast, if you are acquiring the property for investment purposes, then options such as forming an LLC or another form of limited liability entity might make more sense.
- What other assets do you have in your estate? Finally, what other assets do you have in your estate, and how do you intend to distribute your overall estate at the time of your death? While a piece of real estate is a significant asset, it is ultimately just one of many assets for which you will need to plan.
Contact the Highly-Skilled Lawyers at Bolan Law Group.
If you would like more information about real estate ownership and estate planning in Washington, we encourage you to get in touch. To schedule a confidential initial consultation at our offices in Tacoma, please call us or get in touch with us online today.