How do you own your assets?
Aug. 27, 2013 | Written by Carissa Giebel
There are a number of ways to hold title to an asset. Each type of ownership has different rights and obligations. How title is held during life affects how the asset is handled at death. This can be especially important when there are two or more owners of an asset. Below are some examples of ways title can be held.
Sole ownership is the best way for a single person to hold title, unless there is a trust. At death, the assets transfer according to the owner's will. If there is no will, it will transfer according the default provisions in the state statutes. Keep in mind that for a married person in Wisconsin, even if an asset is titled solely in one spouse's name, that asset is likely community property, unless there is an agreement to the contrary.
Tenants in common is when there are two or more owners, where each owner owns a specific, equal or unequal share. When one owner dies, the share of the deceased owner is distributed according to that person’s will or trust, rather than going to the surviving owner(s). Or, if the deceased named a beneficiary for his or her share, the beneficiary would receive the distribution. Difficulties can arise when the owners do not get along or when one owner wants to sell his or her share, which could force a sale of the asset, even if the co-owners do not want to sell.
Joint tenancy with right of survivorship is the most common way for married couples to take ownership in Wisconsin. With this type of title, all owners must take title at the same time, in the same document, and have equal interests. Each owner has an interest in the whole property and has a right to use that property during life. When a joint tenant dies, that person's interest automatically transfers to the remaining owner(s), avoiding probate. The last surviving owner eventually owns the asset solely. At death, the asset transfers according to his or her will or trust.
Community property is a way for husbands and wives in Wisconsin (and a few other states) to hold property. Generally, income and property acquired during marriage is considered community property, even if it's titled in only one spouse's name, unless there is an agreement to the contrary. Each spouse owns a one-half interest and can pass their interest to whomever they would like at death. If community property is left to a surviving spouse, a step up in basis to the market value on the date of death may be given on all of the property, both the living spouse’s interest and the deceased spouse’s interest, which can be a significant tax advantage.
Revocable living trusts are most often the best way to hold title to assets for both single persons and married couples. Assets in a trust will avoid probate, which can be costly and lengthy. Unlike a will, which becomes part of the public probate, a living trust is private. When a trustmaker dies, the assets are distributed according to the terms of the trust. Beneficiaries can inherit with full asset protection from divorce, creditors, nursing home costs, bankruptcy, lawsuits, etc.
Although often overlooked, the way title is held can have important legal implications. It's important to fully understand your rights and obligations for each option, and ensure that your goals will be accomplished.