What are Some Common Mistakes in Titling Real Property?

Title to real property must be transferred, when the asset is sold and must be cleared (free of liens or encumbrances) for the transfer to occur. Unlike other real property assets, real estate ownership can take several forms. Each of these forms has implications on how ownership can be transferred and can affect how they can be financed, improved or used as collateral.

Investopedia’s article, “5 Common Methods of Holding Titles on Real Property,” looks at the ways in which to hold title to real estate property.

Joint Tenancy. This is when two or more people hold title to real estate jointly, with equal rights to enjoy the property during their lives. When one dies, their rights of ownership pass to the surviving tenant(s). The parties in the ownership need not be married or related, but any financing or use of the property for financial gain must be approved by all parties and cannot be transferred by will after one passes. Another disadvantage is that a creditor with a legal judgment to collect a debt from one of the owners, can also petition the court to divide the property and force a sale in order to collect on the judgment.

Tenancy In Common. In this situation, two or more persons hold title to real estate jointly with equal rights to enjoy the property during their lives. However, unlike joint tenancy, tenants in common hold title individually for their respective part of the property and can dispose of or encumber as they chose. Ownership can be willed to other parties, and in the event of death, ownership will transfer to that owner’s heirs undivided. An owner can use the wealth created by their portion of the property, as collateral for financial transactions, and creditors can place liens only against one owner’s specific portion of the property. Any liens must be cleared for a total transfer of ownership to take place.

Tenants by Entirety. This can only be used, when the owners are legally married. This is ownership in real estate under the assumption that the couple is one person for legal purposes. The title transfers to the other in entirety, if one of the couple dies. The advantage is that no legal action is required at the death of a spouse. There’s no need for a will, and probate or other legal action isn’t necessary. Conveyance of the property must be done in total, and the property can’t be subdivided. In the case of divorce, the property converts to a tenancy in common, and one owner can transfer ownership of their respective part of the property to whomever they want.

Sole Ownership. This is ownership by an individual or entity legally capable of holding title. The main advantage to holding title as a sole owner, is the ease with which transactions can be accomplished, since no other party needs to authorize the transaction. The disadvantage is the potential for legal issues regarding the transfer of ownership, if the sole owner dies or become incapacitated. Unless there’s a will, the transfer of ownership upon death can be an issue.

Community Property. This form of ownership is by husband and wife during their marriage for property they intend to own together. Under community property, either spouse has the right to dispose of one half of the property or will it to another party. Anyone who’s lived with another person as a common-law spouse and doesn’t specifically change title to the property as sole ownership (which is legally transacted with approval by the significant other) takes the risk of having to share ownership of the property, in the absence of a legal marriage.

Community Property With the Right of Survivorship. This is a way for married couples to hold title to property. However, it is only available in Arizona, California, Nevada, Texas, and Wisconsin. It lets one spouse’s interest in community-property assets pass probate-free to the surviving spouse, in the event of death.

Entities other than individuals can hold title to real estate in its entirety. Ownership in real estate can be done as a corporation. The legal entity is a company owned by shareholders but regarded under the law as having an existence separate from those shareholders. Real estate can also be owned as a partnership, which is an association of two or more people to carry on business for profit as co-owners. Real estate also can be owned by a trust. These legal entities own the properties and are managed by a trustee on behalf of the beneficiaries. There are many benefits, such as managerial influence, financial and legal liability and tax considerations.

Reference: Investopedia (April 10, 2018) “5 Common Methods of Holding Titles on Real Property”

Suggested Key Terms: Wills, Trusts, Trustee, Asset Protection, Probate Court, Inheritance, Tax Planning, Financial Planning, Community Property, Tenancy by the Entirety, Tenancy in Common, Joint Tenancy, Partnership

When Should You Start Claiming Social Security Benefits?

Social Security has helped generations of Americans. The intent of the program was to provide workers with income to supplement their retirement pensions. Through the years, reports The Crozet Gazette, the program has changed and now provides benefits to disabled workers, spouses and children of beneficiaries. The article, “When Should I Start Taking My Social Security Checks?” says that more than 62 million people receive benefits, making it one of the most used social benefit programs.

Over the years of working and paying taxes into the system, a working person receives a monthly benefit for life, with a COLA (Cost of Living Adjustment) being the only adjustment. Forty “work credits” are needed to be eligible for the program, which is about 10 years of work for most people. Benefits vary, depending upon the earnings of the individual and the number of years they paid into the system. The maximum benefit in 2019 would be $3,770 per month, although most payments range from $800 to $2,400, according to the Social Security Administration.

To receive the full amount, the worker must wait until FRA (Full Retirement Age) to collect benefits. Depending upon the year of birth, FRA can be age 65, 66 or 65. However, workers can take benefits as early as age 62 or as late as age 70. If benefits are taken early, the monthly amount is lower, and that can not change. The later benefits are claimed, the higher the monthly benefit will be.

The question to which there is no single answer, is when to start collecting benefits.

The first issue is if the person needs income and there are no other sources. Many people begin collecting Social Security early, because of unwanted early retirement. They are let go from their jobs and have a hard time finding another position. Another consideration is health. If someone has a chronic illness or a serious illness and they don’t expect to live a long time, it makes sense to take the money earlier.

What most people are looking for when they ask about the timing of benefits is a “break even” age. However, that is an inexact science. Unexpected events happen, so while the numbers may work at one point in time, life circumstances may happen, which makes those numbers useless.

Keep in mind that Social Security benefits may be taxable. Therefore, if you are still working, it makes sense to delay taking benefits.

There are varying opinions on what the future of Social Security will look like. In fact, 2018 was the first year since the 1980s when the program paid out more in benefits, than it received in tax revenue. Congress can authorize funding to address demographic shifts that will impact the trust assets. Social Security was designed as a supplement for worker pensions and not to be the sole income source, so retirement planning should include but not depend upon Social Security.

Reference: The Crozet Gazette (April 5, 2019) “When Should I Start Taking My Social Security Checks?”

Suggested Key Terms: Social Security, Retirement, Taxes, Full Retirement Age, Benefits, Pensions

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