Know How to Hold it - Pros and Cons of Certain Types of Property Ownership

The manner in which you own your property can have important consequences. The common forms of ownership are sole ownership, joint tenancy with right of survivorship and tenancy in common. Each form of ownership has its pros and cons. The way you hold property may affect who has access to your property during your life, who will get the property at your death, and whether you will need to have the property go through probate. The following are some general principles that may help you think about and decide how you want to own your property.

As the sole owner of property, you alone control what happens to your property. You can sell the property. You can will it to someone. A possible disadvantage of being the sole owner is that your heirs will have to probate your estate to transfer title to property such as real estate, bank accounts and stocks. In addition, if you are injured or sick and cannot manage your property and have not named someone as your financial power of attorney to manage them for you, your family or friends may have to go to the time and expense of going to court to name a conservator to take care of your affairs.

Some people own property with another person as joint tenants with right of survivorship. Under this form of ownership, each owner has an equal right to control and possess the property. Upon the death of one owner, the property interest of the person who died automatically transfers to the other owner or owners. Common examples of the types of property owned as joint tenants are a home, bank accounts or car. Most married couples who have a home own it as joint tenants with right of survivorship. Upon the death of one spouse, the other becomes the sole owner of the home.

A benefit of owning property as joint tenants with right of survivorship is that you may avoid probate of your estate because ownership of the that property automatically transfers to the survivor at the death of one of the joint tenants. This may save some legal costs. Joint tenancy allows quick access to a residence and other assets after the death of one of the joint tenants. Joint tenancy in a bank account also allows someone to have access to the account to help you pay bills if you are unable to pay them.

There are risks in joint ownership. Each owner has an equal right to the property. Joint tenants need to agree on how to manage the property. In some instances, a joint tenant could legally take control of the asset and the other owners may have difficulty retrieving their share of the property. For example, if a relative is named as a joint tenant of your bank account, that relative could withdraw funds without your permission. Property owned in joint tenancy is also subject to seizure by the creditors of either of the owners. If your child's name is on your bank account as a joint owner, your child's creditors may be able to garnish the funds in that bank account. Joint ownership can also cause liability problems. If you are a joint owner of an automobile, and the other owner causes an accident, you could also be held responsible for any damages. Another potential disadvantage is that a joint owner cannot will his or her share to anyone.

Another possibility of ownership is to own property as tenants in common. This means there are two or more owners and each owns an undivided share of the property. There is no survivorship among tenants in common. Upon the death of an owner, that owner's share will pass to his or her heirs.

A benefit to this type of ownership is that you can will your property to whomever you want. A disadvantage is that probate of an estate is still needed to change the title to the new owner. Also, owners face the same liability and control issues as joint tenants.

An alternative to owning bank accounts or CD's as joint tenants with right of survivorship or as tenants in common is to create a payable on death (POD) account. A POD account is created at the bank by naming beneficiaries to receive the remaining balance of the account at your death. It takes approximately six months for beneficiaries to receive the funds. A POD account allows a person to keep complete control of a bank account while living, but allows the transfer of the account proceeds at death without probate.

Another way to permit a person to have access to your bank accounts and other property is a durable power of attorney for financial matters. You can name a person in this document to handle your banking and other financial matters without adding his or her name as a joint owner. This avoids problems with you being liable for the other person's debts and may allow you to maintain more control of the property. 

If you own substantial assets there may be federal estate and gift tax consequences, and joint tenant ownership may not be your best option for owning property. There are also additional issues that may affect the way you own your property that are not addressed here. Because there are so many consequences based on how you own your property, please consult your attorney or call Iowa Legal Aid. If you are age 60 or over, call the Legal Hotline for Older Iowans for further advice. 

Iowa Legal Aid provides help to low-income Iowans. 

To apply for help from Iowa Legal Aid:

• Call 800-532-1275. 
• Iowans age 60 and over, call 800-992-8161.
• Apply online at iowalegalaid.org

If Iowa Legal Aid cannot help, look for an attorney on “Find A Lawyer”   A private attorney there can talk with you for a fee of $25 for 30 minutes of legal advice.

*As you read this information, remember this article is not a substitute for legal advice.