TITLE = RESULT: The Importance of Proper Ownership (Part 2 of 2)*

In part 1, we talked about the importance of how property is owned.  The fact is that plan results are tied directly to how assets are titled.  That's why we say, "Title = Result."

In separate property states, such as Arkansas and Missouri, the three primary forms of property ownership include fee simple, tenancy in common, and joint tenancy with right of survivorship ("JTWROS").

We have already covered fee simple, and began a discussion on tenancy in common.  We used the example of you and a friend who own a horse as tenants in common.  We discussed how each of you would own 50% of the horse, and that there is probably no problem with that--unless the two of you have a falling out.

If you can't reach an agreement on who owns the horse, and what one co-tenant is going to pay the other for their half, you are likely to end up in court with a judge ordering a sale.  Other challenges can arise even if you and your co-owner get along fine.  Issues arise if one of you wants to sell your half to a third party, or if one of you becomes mentally disabled.

You can sell your 50% interest in the horse anytime you want, or you can give it away.  Your other tenant cannot prevent either action.  Even if you sell the horse to your friend's worst enemy, your friend cannot do anything about it!  The real problem is getting someone to buy your part of the horse.  This new tenant will have to deal with your friend, and they, too, will have to agree on what to do with the horse.

Disability can be a problem for both you and your co-tenant.  If you are disabled to such an extent that you cannot manage your own affairs, and you have not done proper revocable trust planning, a probate court will likely control your part of the property.  The court may demand that the property should be sold--and your other tenant will have little or no control over the whole process.

At your death, you can leave your share of the property to whomever you want.  Without proper planning, it will go through probate, leaving your other tenant once again under the control of the court.  You may leave your share to several heirs, making life that much more difficult for the other tenant.

JOINT TENANCY WITH RIGHT OF SURVIVORSHIP ("JTWROS") is very common and very misunderstood.  It is routinely used by spouses, but people who are not married use it, too.  Although similar to tenancy in common, JTWROS has totally different results.  If you own property in JTWROS:

(1) You own all of it with someone else;
(2) You can (a) give your interest away or (b) sell your interest; and
(3) You cannot leave your interest on death.

There are so many possible pitfalls with JTWROS that the next article will be devoted to that topic.

*Adapted from Planning Partners Press.