The titling of your property is an important concept to understand to determine who has access to your property and what will happen with that property when you die. “Titling” is a word used to refer to who (one or more persons) owns the property, and what rights they have to the property (in other words, whose names are on the title of the property). “Property” means something that you own, such as a bank account, car, or home.
To understand how your financial and estate planning documents will operate, it is important to understand how property titling works. The decision of how to title your property is a significant one, which can completely change who can access your property, what rights they have, and who inherits from you. Adding co-owners to your property can also give the creditors of the co-owners certain rights to your property! These decisions can have enormous consequences. Be very careful before adding owners to your property. You may wish to consult with an attorney and tax professional before doing so. In particular, if you believe you may need to qualify for Medicaid assistance, you should consult with an elder law or disability rights attorney before making any changes to the title of any property.
Property can be owned/titled in a number of ways and the form of ownership/titling will determine an owner’s rights to the property during the owner’s lifetime and also how the property will be disposed of at the death of an owner. Generally, there are three main categories of property ownership/titling:
(i.e., Joint Ownership with Rights of Survivorship, Tenants by the Entirety, and Tenants in Common)
Direct Transfer Ownership
(i.e., Beneficiary Designation, Payable on Death, Transfer on Death, and Revocable Trusts).
If you own property in your individual name (alone and as the ONLY owner), then you are the only person who can access and manage the property. In the event of your disability, in order for someone else to access and manage the individually owned property for you, such person would need a financial Power of Attorney or would need to pursue guardianship. Upon your death, individually owned property will be controlled by your Will, if you have one. Otherwise, such individually owned property will be controlled by Maryland’s laws of intestacy, which is a set of laws that provides how your property will be distributed in the event that you die without a Will. Lastly, it is important to note that, upon your death, all of your individually owned property is subject to probate, which is the process by which the court oversees the transfer of your property at death. More information about the probate process is found in the article Wills and Other Property Transfer Documents.
It is possible to co-own property together with one or more other people – this is known as “joint ownership”. There are three forms of joint ownership, which are:
Tenants by the Entirety
Joint Ownership with Rights of Survivorship
Tenants in Common
Typically, when you own a bank account or real property with one or more other people, the title to the account or the deed to the real property will reflect which form of joint ownership the property is titled as. To make things more complicated, these forms of ownership can sometimes be combined. For example, the ownership in a home might be divided equally as tenants in common, but with 50% owned by a married couple as tenants by the entirety, and the other 50% owned by their daughter. Decisions regarding property titling can be quite complex, and you may wish to consult with an attorney prior to making any changes.
“Tenants by the Entirety” is a form of joint ownership reserved only for married couples. This form of ownership can sometimes be used to protect property from the creditors of only one spouse. This is because the property that is owned as tenants by the entireties is considered to be entirely by both spouses, and not owned by each of them as to a separate and divisible 50%. Accordingly, the creditor of only one spouse may not force the sale of the property that is also considered to be owned by the other non-debtor spouse. When it comes to bank or brokerage accounts, if one spouse becomes disabled, the other spouse will still have access to the property in the account; for real estate, both spouses can use the property, but if one becomes disabled and the real property needs to be sold, the other spouse would need a financial Power of Attorney or guardianship to do so. This kind of ownership means that if one spouse dies, the surviving spouse automatically inherits the property (and as a result, the property will not be subject to probate as part of the deceased spouse’s estate).
The second form of ownership, “Joint Ownership with Rights of Survivorship,” can be used by any two or more people for the ownership of any kind of property. Whereas, tenants by the entireties is a form of ownership available only to a married couple, joint ownership with rights of survivorship is a form of ownership available to two or more people, including married people. When it comes to bank or brokerage accounts, if one owner becomes disabled, the other owner(s) will still have access to the property in the account. For real estate, all owners can use the property, but if one owner becomes disabled and the property needs to be sold, someone else would need a financial Power of Attorney or guardianship to do so on behalf of the disabled owner. In the event of one owner’s death, the deceased owner’s ownership in the property automatically transfers to the surviving owner or owners (and as a result, the property will not be subject to probate as part of the deceased owner’s estate).
The last form of ownership, “Tenants in Common,” can also be used by two or more people for the ownership of any kind of asset, although it is most common with real estate. With this type of ownership, a significant difference from the other types of ownership is that each owner will own a specific fraction of the property, and each owner will usually own that fractional interest as a sole owner. The ownership interests can be equal, but they do not need to be. For example, one owner may own 80% of the property, and another owner may own 20% of the property. If one owner dies, that owner's share of the property will not automatically transfer to the other owners, but would typically be subject to probate as part of the deceased owner’s estate, to be transferred by the deceased owner's Will or to heirs decided by state law.
There are three main categories of direct transfer ownership:
Payable on Death/Transfer on Death Accounts
All three categories allow the property owner to transfer their interest in such property directly to the designated beneficiaries upon the death of the property owner and, as such, such property is not subject to probate. Each category of direct transfer ownership is discussed in detail below.
Beneficiary Designations allow you to transfer assets directly to individuals, regardless of the terms of your Will. (See the article on “Wills and Other Property Transfer Documents.) Generally, a Beneficiary Designation is a form in which you designate beneficiaries to receive the balance of property upon your death. Beneficiary designations are most often associated with life insurance policies and retirement accounts, but can also be used with annuities and mutual funds. During the property owner’s lifetime, the persons designated as beneficiaries have no right to access or manage the property. However, upon the death of the property owner, the property passes directly to the designated beneficiaries by operation of law, and as such, the property controlled by beneficiary designations are not subject to probate.
Payable on Death Accounts (generally associated with bank accounts such as checking and savings accounts) and Transfer on Death accounts (generally associated with stock and brokerage accounts) allow an owner of such accounts to designate beneficiaries to receive the balance of such account directly by operation of law upon the account owner’s death. During the lifetime of the account owner, the persons designated as the payable on death or transfer on death beneficiaries have no right to access or manage the account. However, upon the death of the account owner, the account passes directly to the designated beneficiaries by operation of law, and as such, the property controlled by a Payable on Death and/or Transfer on Death account are not subject to probate.
A Trust is a relationship in which one party, known as the “Grantor”, gives another party, known as the “Trustee”, the right to hold property or assets for the benefit of a third party who is the beneficiary of the Trust. There are two types of Trusts: Revocable Trusts and Irrevocable Trusts. There are many reasons that individuals may set up some sort of Trust. Typically, it may be done to avoid probate, or it may be done for certain asset protection reasons. Regardless of what type of Trust you may establish, it can have serious consequences in many different respects, such as asset protection, divorce, bankruptcy, and your ability to make changes to your plan in the future. Trusts should always be created under the advice of an attorney with knowledge in the area of estates and trusts law.
What is a Revocable Trust?
A “Revocable Trust” (sometimes calling a “Living Trust” or “Revocable Living Trust”) is a type of Trust you may set up for yourself while you are living. You may transfer your property to a Revocable Trust in which you would be the trustee (i.e. the person responsible for managing property) and sole beneficiary (i.e. the person who receives the financial benefit of the Trust property) while you are living. The Trust could be changed or revoked by you. You could transfer the property in and out of the Trust as needed, although if you have a mortgage on a home that you wish to transfer into your trust it is best to notify the mortgage company of the transfer and obtain their consent. The home (or its proceeds, if it is sold) can be transferred to the trust’s beneficiaries when you die. One advantage to having your property held in a Revocable Trust is that it avoids the cost of probate upon your death and affords some privacy. The disadvantage can be the additional cost of setting up the trust and the deed to transfer the property.
What is an Irrevocable Trust?
An “Irrevocable Trust” is a Trust that may not be changed or revoked by you. In some specific situations, it may be beneficial for you to transfer your property to an Irrevocable Trust in which you name another person to serve as trustee, and in which you, your family, or others are named as beneficiaries. The advantage to Irrevocable Trust ownership is the preservation of value of the home for your loved ones. The disadvantage is the loss of control and the cost of setting up the trust and new deed.
This article was adapted from the Life and Health Planning Handbook created by the Life and Health Planning Committee of the Maryland Attorney General's Covid-19 Access to Justice Taskforce.