This is a question that is frequently asked, and one that unfortunately does not have a simple answer. However, if one knows some of the questions to ask, then it is easier to provide guidance. Some questions/issues to consider and why:
- Are the buyers concerned about third party liability, such as with respect to rental property? If so, some sort of corporate entity may be the best vehicle.
- Do the buyers want ease of ownership transfer? If so, again a corporate entity may be the best vehicle, thus permitting the transfer of shares/units without incurring documentary stamp taxes.
- Do the buyers have estate planning objectives? If so, a trust may be the best vehicle.
- Do the buyers want their spouse or other joint owner(s) to inherit their interest upon their death? If so, taking title as joint tenants with rights of survivorship (if unmarried) or tenants by the entireties (if married) may be the best route, thus permitting the property to automatically pass to the other owners.
- Do the buyers want a third party to inherit their interest upon death? If so, a trust may be the best vehicle to direct such transfers upon their death without the need for costly probate.
- Do the buyers want to control their specific interest in the property upon their death? If so, holding title as tenants in common may be the best vehicle, thus permitting each owner to decide where their interest will go upon their death.
- Do the buyers intend to occupy the property as their homestead? If so, the buyers will likely need to take title in some individual capacity in order to qualify for a homestead exemption.
- Do the buyers intend to get financing? If so, the buyers will likely need to take title in some individual capacity, as most lenders will not allow homeowners to take title in an entity.
- Are the buyers concerned about creditor’s claims? If so, holding title as tenants by the entireties (if married) may be the preferred route, thus preventing creditors from attacking the interests of the other spouse.
There are obviously a myriad of other issues to consider when taking title, and unfortunately, most buyers do not consider many of these issues nor do they seek legal advice. As such, many buyers find that their objectives were not met when they acquired the property, and are forced to perform costly after-the fact reconveyances (assuming they even discover the issue before it is too late). We advise buyers to determine how they wish to take title prior to entering into a contract, as most closing agents will follow the contract when setting up and closing a transaction. Remember, the process of determining how to take title involves legal analysis and we strongly encourage buyers of real property who have questions to consult with their real estate attorney.
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
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