Whether you are in the market to purchase or currently hold real estate, it is important to consider the title in which you register your property. Often, real estate is your most valuable asset, and without careful evaluation of your options, you can potentially lose control. Below are five ways title can be held and their implications.
1. Individual Name: This is when you hold the title to real estate in just your name regardless if you are married. Some drawbacks can occur with this option should you become mentally or physically disabled and unable to manage your estate. A will cannot assist you if you become incapacitated, and when you die, the real estate will end up in the probate court system before your beneficiaries can change title.
2. Community Property: Texas is one of nine states that allow married couples to hold property in both names as community property. In community property states, when you pass away, the surviving spouse will get the real estate, unless you specify otherwise in your estate plan (will or trust). There are exceptions to this under Texas law, as a surviving spouse has the right to occupy the homestead property for the rest of his/her life. The problem with community property is that each spouse can dictate in their individual estate plan who will inherit their portion of the real estate. This could lead to multiple co-owners and losing full control over your real estate, or the surviving spouse leaving the real estate to his/her new spouse!
3. Revocable Living Trust: A Revocable Living Trust allows for your real estate to be held in the name of the Trustee of your trust. As the Trustmaker, you retain full control and can make changes to the trust instructions as long as you are alive. You and your spouse can serve as Trustees, in addition to other Co-trustees. You can buy, sell and refinance the real estate as you wish. Within your Revocable Living Trust, you will name a Successor Trustee that will manage your real estate without court interference if you become incapacitated. The Successor Trustee is legally obligated to follow the explicit instructions in the Revocable Living Trust that you dictated, ensuring your real estate is handled the way you intended. At death, the real estate will pass according to your trust instructions without having to go through probate court. This allows for an expedited estate administration and a higher degree of privacy, since probate court records are public record.
4. Irrevocable Trusts: If you wish to gift real estate while you are still alive, or create a trusts that can hold real estate for asset protection purposes, an Irrevocable Trust should be considered. An Irrevocable Trust is a trust that once created, cannot be changed (with certain exceptions). Under Texas law, the Trustmaker generally cannot be the beneficiary, unlike a Revocable Living Trust; however, this feature makes the Irrevocable Trust asset protected against creditors. If the intended beneficiaries are minors or disabled, holding title to real estate in an Irrevocable Trust allows for the trustee that you select to administer the real estate for the benefit of the minor or disabled person. Gifting real estate with Irrevocable Trusts should also be considered for adult children, safeguarding the property against your children’s creditors, divorces, substance abuse or immaturity issues.
5. Limited Liability Company (LLC) or Limited Partnership (LP). Holding title to real estate with an LLC or LP should also be considered, especially if the real estate is commercial property. The LLC or LP in turn can be owned by you, your trust, or another LLC or LP that you control. Real Estate titled in an LLC or LP creates a high degree of asset protection. The LLC or LP can be designed to align with your current estate plan, maintaining control in case you are disabled, and leaving instructions once you pass away.
As you can see, there are many issues to consider when holding title to real estate. You should always consult an experienced attorney on how to title your real estate and explore which option is best for your needs.
Ivan Ramirez is a San Antonio, Texas based attorney that provides legal services in the areas of estate planning, estate administration, probate, asset protection planning, estate and gift tax planning, business entity planning, and business contracts. Ivan is also fluent in Spanish.
The advice provided in the article is for general educational purposes only. For specific legal advice, consult with an attorney.