When done properly, estate planning incorporates a wide range of tools and strategies that help you achieve several inter-related goals. Creating a successful estate plan, therefore, also requires you to consider more than just how you want your estate assets to be distributed after you are gone. How you legally hold assets during your lifetime, for example, can also be important because it can directly influence how those assets are passed down after you are gone. Let me explain your options for co-owning property in Maryland and how those options can impact your estate plan.
Why Does It Matter How Property Is Titled If We Own It Jointly?
Not all types of joint ownership are the same and the type of joint ownership you have in property is important for a variety of reasons. It can directly impact your own rights to the property, how the property is taxed, and what happens if you were to get sued and what happens to your interest in the property after your death.
Co-Owning Real Property in Maryland
If you purchase real property and more than one person will have an ownership interest in that property, you will likely be asked how you want the property to be titled. Co-ownership of real property is governed by state law, meaning each state decides what types of joint ownership will be recognized within the state. In Maryland, the types of joint ownership available, along with some of the most important characteristics of each type, are as follows:
- Tenants in Common. Tenancy in common is typically the default type of joint ownership unless the owners are married, meaning if the ownership instrument is silent regarding the type of joint ownership, the law will presume you hold it as tenants in common. Owners of property as “tenants in common” own an undivided fractional interest in property. Even though the owners may own unequal shares of property, they still can each use the entire property. The physical property is not divided. This is known as unity of possession. As a tenant in common you can sell, mortgage, transfer, or assign your share of the property without the consent of the other owners. Your interest in the property will become part of your probate estate after your death if you hold the property as a tenant in common.
- Joint Tenancy. Joint tenancy with “rights of survivorship” is created when the four “unities” are met. All owners have an undivided interest in the whole property and can use the entire property; however, upon the death of one of the owners, any remaining owners will take the complete rights of the deceased owner. The four unities that are required include:
- Unity of time: All co-owners need to take ownership of the property at the same time.
- Unity of title: All co-owners need to assume the title by the same instrument (deed, Will etc.
- Unity of interest: All co-owners need to hold an equal share of the property.
- Unity of possession: All co-owners have an equal right to possess and use the entire property, regardless of what percent of the property they own.
In either of the above, a judgement creditor of one owner can attached a lien to the Property.
- Tenancy by the Entirety. This type of co-ownership is only available to married couples and provides extra protection to marital property. It is similar to “joint tenancy”, but also requires the owners to be married to each other at the time of the property transfer. This type of co-ownership requires the “four unities” of joint possession plus the fifth unity of marriage. Absent clear language to the contrary, Maryland law will presume that a married couple hold title as tenancy by the entirety to any property acquired during the marriage. Divorce of the owners will convert a tenancy by the entirety to a tenancy in common. The other big benefit of Tenancy by the Entirety is that for a judgment creditor to attach a lien to the Property, they must be a creditor of both spouses.
As you can see, the type of co-ownership you decide on for real property can dramatically impact your estate plan which is why you should always consult with your estate planning attorney before deciding how to title property.
Do You Have Questions about Co-Owning Property in Maryland?
For more information, please contact my estate planning office in Owings Mills, Maryland by calling 410-654-3850 to schedule an appointment.
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