Living trust best way to hold title to real estate

On Oct. 28, we talked about the important decision realty buyers must make on how to hold title.

We discussed the pros and cons of three of five popular methods: sole ownership, tenants in common and joint tenancy. Today we compare those with two other methods: community property and living trust.

Sole ownership is used by singles and married individual who who to take title in one spouse's name alone. The drawbacks include lack of tax advantages, plus probate costs and delays when the owner dies.

Tenants in common is used when two or more individuals acquire real estate together and they're not married to each other. The ownership interests don't have to be equal. When one tenant dies, his or her share passes according to his or her will to named heirs, or without a will, to the nearest living relative.

Problems can arise if the inheriting co-owner fails to go along with fails for the surviving tenant in common.

Joint tenancy with rights of survivorship is a method most husbands and wives choose. Interests are equal. After one joint tenant dies, the surviving tenant(s) automatically receive title to the deceased joint tenant's share without probate. A major drawback is that a tenant during this lifetime can convey his or her share without the permission or knowledge of the other(s).

As with tenancy in common, a joint tenant can bring a partition lawsuit against the other joint tenants to force a sale of the property and division of the sales proceeds.

A husband and wife in the states of California, Nevada, Louisiana, Wisconsin, Texas, Arizona, Washington, Idaho and New Mexico, as well as Puerto Rico, can take realty title as community property. Each spouse owns a half interest and can pass their share by will to either the surviving spouse or another person, such as a child or even a non-relative.

Community property offers a major tax advantage for a surviving spouse who receives the deceased spouse's share by will.

Single and married property owners can hold their titles in a revocable "inter vivos" (which means "among the living") trust. The primary purpose is to save probate costs and delays. A secondary advantage is the living trust can be changed or revoked, which much like a will, to determine who receives property title after a co-owner dies.

Until the trust creator(s) dies, the trust assets such as a home, rental property, stocks and bonds, and other major assets can be bought, sold refinanced and managed by the owners. However, when an owner dies, the living trust becomes irrevocable, and the successor trustee, such as a spouse, adult child or bank trustee, takes over and administers the trust assets.

A relatively unknown living trust advantage occurs if the trustor become unable to manage his or her affairs, perhaps due to the stroke or Alzheimer's disease. Then the successor trustee manages the trust assets, even selling them if necessary. This procedure avoids costly court delays and appointment of a conservator.

Still another living trust advantage for holding property title is privacy. Unlike a will, which becomes part of the public probate file when an individual dies, the living trust remains private (except in South Dakota). For example, the late Bing Crosby left his multimillion dollar estate in living trust, which never became public. Court challenges of living trusts are difficult, compared to will contests.

Because of its advantages and few disadvantages, for most individuals and married couples, the living trust is the most advantageous way to hold title to real estate.

This article was featured in the South Bend Tribune and written by Robert L. Bruss.