Many people want to transfer title to their homes or other real estate to their children, or add their children to the title. Their reasons for doing so including simplifying their estate or avoiding probate. In some situations this can work well. However, there are many potential issues which can create more problems than were avoided.
Two or more people can own real estate as tenants in common or as joint tenants. Both have equal rights and obligations to the property while they are both alive. However, there are different results when one owner dies. If they are tenants in common, the deceased owner’s interest is inherited by his descendants or whoever he specifies in his Will. However, if they are joint tenants, the surviving owner inherits the deceased owner’s interest and then owns it as well as his own.
Alternatively a real estate owner can transfer the property to a child or other person and reserve a life estate. This means that the owner has the sole right to possession of the property and the sole obligation to maintain it during his lifetime. The child has a remainder interest which means that he inherits all rights to the property at the life tenant’s death. The life tenant has the sole right to live in the property and the sole responsibility to pay taxes and expenses of the property. However, if the property is sold, the remainderman is entitled to a percentage of the sale proceeds based on the parent’s life expectancy and age at the time of sale. The percentage is established by using the applicable IRS tables in 26 USC §1274(d)(1).
A court probate proceeding is needed to remove the deceased owner’s name when title is held as tenants in common. The person or people inheriting the property interest are determined by the decedent’s Will or, if none, by intestacy statutes and a personal representative must be appointed to sign the deed transferring title. No probate proceeding is necessary if title is held in joint tenancy or a reserved life estate, and title can be transferred by recording an Affidavit of Survivorship. However, tenants in common, joint tenants and remaindermen are all considered owners of the property and must consent to the sale or mortgage of the property during the lifetime of the original owner.