How can my fiance and I preserve each other's rights if we buy property together?
Full Question:
Answer:
If you are not married at the time you purchase real property, it may be beneficial to consider taking title to the property as joint tenants with right of survivorship.
the surviving joint tenants with survivorship rights automtically inherit the property directly under the deed, outside of the probate estate include in intestacy. When a person dies without a will, their estate passes under the intestacy laws of the state where s/heresided at the time of death. However, certain property, such as property held as joint tenants with right of survivorship, passes automatically on death, outside the intestate estate.
Joint tenancy is a form of ownership by two or more individuals together. It differs from other types of co-ownership in that the surviving joint tenant immediately becomes the owner of the whole property upon the death of the other joint tenant. State law, which varies by state, controls the creation of a joint tenancy in both real and personal property. Joint tenancy property passes outside of probate, however, it may be severed so that the property becomes part of one person's estate and passes to that person's heirs. A joint tenancy between a husband and wife is sometimes known as a tenancy by the entirety. Tenancy by the entirety has some characteristics different than other joint tenancies, such as the inability of one joint tenant to sever the ownership and differences in tax treatment. In some jurisdictions, to create a tenancy by the entirety the parties must specify in the deed that the property is being conveyed to the couple "as tenants by the entirety," while in others, a conveyance to a married couple is presumed to create a tenancy by the entirety unless the deed specifies otherwise. Each joint tenant has an equal, undivided interest in the whole property. All joint tenants, and their spouses, must sign deeds and contracts to transfer or sell real estate. A joint tenant may convey his or her interest to a third party, depending on applicable state law. This conversion would in effect terminate the joint tenancy and create a tenancy in common.
Joint tenancy comes into being, or is created, by a specific act of the parties involved. For example, real estate held in this fashion is typically the result of a property transfer by deed. Each joint tenant owns an equal share of co-owned property. When the first joint-tenant dies, the title designation transfers the property immediately and automatically to the surviving joint tenant. This ownership arrangement is said to be a will substitute because it eliminates probate of this particular asset. Avoiding probate does not mean the property will not be included in the taxable estate of the first co-owner to die, or that state and a federal gift and estate taxes will be avoided. Estate planning experts feel joint tenancy is a poor method of planning property transfer for two reasons. First, each co-owner has given up the right to leave the property to anyone other than the other co-owner. Circumstances may change and either tenant may later want to leave the asset to someone else. Either party can usually dissolve a joint tenancy during life, but this may not always be possible or practical. Second, where taxes are an important consideration in planning an estate, holding assets in joint tenancy does not permit one joint tenant to leave their share of the assets in such a way as to save taxes. Upon the death of the first joint tenant, the asset goes outright to the survivor. This causes the survivor’s taxable income and taxable estate to be increased. Careful consideration should be given to the tax consequences of dissolving existing joint tenancies because additional gift and estate tax obligations may be created. Tax implications should be fully explored with tax experts before changes are made and, particularly, before new joint tenancies are created.