There are different kinds of property as well as different ways of owning property. It's important to know about these differences so you can decide how you want your property to be owned.
All types of property can be categorized as either real property or personal property. Whether something is real property or personal property can be determined by a surprisingly simple question: can you physically move the property?
Real property (or real estate) is land or everything that is permanently attached to the land. It can’t be moved. While materials such as wood, metal or other building materials aren’t real property on their own, they can become real property if they are attached to land in the form of a house, garage, barn or any structure. Mineral rights (ownership or a right in precious minerals, and oil and gas) are considered real property.
Personal property is property that can be moved. This includes material goods such as all of your clothing, any jewelry, all of your household goods and furnishings, your car, and anything else that is movable and not permanently attached to a fixed location. Bank accounts and other financial assets such as investment accounts are also considered personal property.
Both real and personal property can be owned by an individual, a business, by a trust, or by joint or co-ownership, which is called tenancy. Tenancy is further broken down, and real and personal property can be held by (1) joint tenancy, (2) tenants by the entirety, or (3) tenancy in common.
Joint Tenancy
Joint tenancy is a type of shared ownership of property, where each owner has equal rights to enjoy the property during their lives, along with equal obligations. When one of the joint tenants passes away, their rights of ownership pass to the surviving joint tenants through a legal relationship known as a right of survivorship, which precludes the co-tenant’s heirs from inheriting their share of the property. Joint tenancy can also be extinguished when one of the co-tenants sells their share of the property to a third party. Joint tenancy is recognized in Utah.
Tenancy by the Entirety
Tenancy by the entirety is a type of shared ownership of property, where each owner has equal rights to enjoy the property during their lives, along with equal obligations. Unlike joint tenancy, depending on which state the property is located, tenancy by the entirety is only available to married couples. The primary difference with joint tenancy, however, is that a co-tenant cannot transfer their interest in the property without the consent of the other spouse. Tenancy by the entirety is not recognized in Utah, but is recognized in about half of the states.
Tenancy in Common.
Like joint tenancy or tenancy by the entireties, tenants in common share in common property and have the right to use all the property. But that is where the similarities end – tenants in common can share the property in unequal proportions and can sell their share (or a portion of their share) to another party without the consent of the other co-tenant. Tenancy in common does not have a right of survivorship. Tenancy in common is recognized in all states.
Ownership can be further complicated be other less common methods, such as life tenancy, community property, and sole ownership.
How property – both real and personal – is owned is important. For example, if the family home and bank accounts are held in joint tenancy by a husband and wife, and the husband passes away, then the wife has uninterrupted access to the bank accounts and can doesn’t need to go through the expense of a court proceeding to establish inheritance rights.
The methods of owning property are determined by state law, so individuals trying to determine the best method to own property – both real and personal – should consult with an attorney that is knowledgeable to determine the unique differences for each method as set out by their state. It is also wise to consult with an attorney to determine if property should be owned by a business entity, such as a corporation, trust, or partnership.
The capacity in which you hold your property can be a great estate planning tool. In the event of the sole and joint ownership by individuals, prospective owners should consider how their title to property should or could be transferred, either by sale or in the event of death, before one method is chosen over another. How property is held should be balanced with tax considerations, the method of selling/transferring the property, inheritance, and whether you want involvement with a court for probate or administration proceedings.
The attorneys at Lear & Lear have extensive experience with the nuances of real and personal property, the methods of ownership for each, and can consult you on the best method of ownership for your needs. Please don’t hesitate to contact us regarding your personal and real property questions, how ownership can be used as an estate planning tool, and what type of ownership is right for you.