Types of Property

Estate planning involves a person assessing his life, family, and assets. Before a person can prepare an estate plan, he must have a total understanding of the actual contents of his estate. The reason is that he cannot give away what he does not own. Title is the legal right to the possession of property. Title is almost the same as ownership. How a person holds title to property (owns property) determines what he can give away in a will or trust. If a person attempts to give property away and it is later discovered that title was held in a way that did allow such gifts, no gift is made and the bequest is disregarded.

Two state law systems have developed to determine how title to property owned by married couples is held. All but nine states are common law states. In a common law state, all property owned before marriage, received as a gift by one spouse, inherited by one spouse, or which is in only one spouse's name is a sole separate asset of that spouse. In a common law state, property bought with separate funds is solely owned by the purchasing spouse while property bought with joint funds is owned jointly and is considered a marital asset.

In a community property state, all property owned before marriage, received as a gift by one spouse, or inherited by one spouse is a sole separate asset of that spouse. Additionally, property bought while married with funds that can be traced to ownership before the marriage is considered separate. Separate property also includes property acquired after separation as well as property jointly owned that is intentionally given in writing to the other spouse as sole property.

Ways to Own Property

Sole ownership is when a person completely owns property by himself. Such property is bought with a person's own money and is not shared with anyone else. Property owned as a sole possession can be given away as the owner wishes.

Tenancy in common is a way for two or more people to own real property. In such a tenancy, each owner holds a proportional share in the real property and has the same right to use the property. Depending on the money spent and the parties' agreement, the shares of ownership may be unequal. A person who owns as a tenant in common is permitted to give away his share.

Joint tenancy is when all the people listed on a title own the whole property. Such a tenancy is typically used by married people who buy real property together. The most important feature of this type of ownership is that when one joint tenant dies, their share of the property automatically becomes the property of the surviving joint tenants. The transfer is done outside of probate, which is the court procedure that distributes property to heirs or beneficiaries. Property owned in joint tenancy can be given away only after the death of the last surviving joint tenant.

Tenancy by the entirety is similar to joint tenancy in that people own the whole property together and if one dies, their share automatically goes to the surviving tenant. However, a tenancy by the entirety always concerns just two people because it can only be between spouses. A tenancy by the entirety is legal in about half of the states. A person that owns property in such a tenancy cannot give it away because it does not belong only to them.

Community property is the law in nine states, whereby a person can give away only their separate property and half of the property acquired during marriage. In a community property state, all assets obtained during marriage belong jointly to both spouses. This includes property that was once separate but is now a community asset because it has been mixed with other community assets (known as "commingling"). In states that follow community property laws, property ownership depends on when the property was acquired.

Joint marital assets are the law in the 41 states that follow the common law. In these states, ownership of joint marital assets is determined by whose name is on the title. Joint marital assets are those to which both names appear on the title or were bought with joint income. Therefore, a person can give away their separate property and half of the marital property, but the remaining half of marital property generally must be given to their spouse. In states that follow the common law, property ownership depends largely on how title is held.

Copyright 2007 LexisNexis, a division of Reed Elsevier Inc.