One of the many decisions you must make at the time of closing your home is how you will hold title to the home. While most buyers don’t spend a lot of time thinking about this, how the deed to your home is titled could have a lot of impact on the biggest financial investment you are making. Therefore, it’s critical to do some research on this issue and consult with a tax advisor (or legal advisor) before determining which way you need to proceed.
To help you get started, here are some common ways your home can be titled. First, is community property. Arizona is a community property state, one of nine in this country. What this means is that anything that is earned in a marriage is owned equally by each partner in the marriage. Property acquired in this state is presumed to be community property unless otherwise specified by the parties. Both people own one half of the community property, separately but unified. However, this way to hold title does require a probate hearing in the event of death of one of the spouses.
If you are unmarried when you purchase property, this is typically titled as sole ownership. Therefore, the buyer is the only person with interest in the property, and the property is included in his/her estate if he/she dies. A married person can purchase separate property only if their spouse signs the deed stating that they are not interested in owning that property as community property.
If two people are not married but wish to purchase property, they can own it via joint tenancy. This type of deed does not require the individuals to be married but they must have equal ownership in the property. More than two people can own a property in joint tenancy, so long as all shares of ownership are equal. A tax benefit of joint tenancy is that the estate will be passed on automatically to the surviving joint tenant(s) without the need for probate (ie, court).
A title holding trust is where ownership of the property is divided into any number of interests, and is often used by groups of people or corporations. Because a trust can’t hold title on its own, once the loan is closed, a deed can be drafted to put the property in the trust. The title holding trust gives the owner of the trust more specific ways he/she can detail the estate.
Finally, a final type of title to consider is also the most common way to title a home, and that is community property with right of survivorship. This type of title retains all the benefits of community property but does not require a probate hearing in the event of a death of a spouse. No court action will be required to clear the title.
Again, this is just a primer on the most common types of title here in Arizona. If you have special tax consequences or financial concerns, please consider consulting with a tax advisor or attorney to make an informed decision about this exciting purchase.
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