What's in a Name? Forms of Property Ownership

Most people think of real property when the subject of ownership comes up, but all kinds of property—bank accounts, stocks, mutual funds—can be owned in a variety of ways. The way you own your property determines the flexibility you have to sell it while you’re alive, and also what happens to it after you die.

Basically, there are four ways to be a property owner:

• By yourself, as a sole owner
• As a joint owner
• In an arrangement called tenants by the entirety
• As tenants in common

In addition, if you’re married and live in a community property state, half of what you buy or earn during your marriage legally belongs to your spouse.

jt Tn w/ros

This cryptic acronym, which frequently appears on bank accounts and mutual fund statements, stands for joint tenants with right of survivorship. It means that both owners have equal access to the property while they’re alive, and the property belongs to the survivor when one of them dies. For example, if you and your mother have a joint checking account with survivorship rights and your mother dies, the money is yours.

Estate Implications

If you own property jointly with your spouse and you die first, only half the jointly held property is added to your estate. For example, if you and your spouse own a $600,000 house jointly, and you die, only half the value, or $300,000, is counted in figuring the value of your estate.

If the joint owner is someone other than your spouse—such as your child or a partner to whom you’re not married—the rule is that the entire value of the property is added to the estate of the person who dies first. If you owned a $600,000 house jointly with a friend, for example, the entire $600,000 would be added to your estate at your death—even though he or she would become sole owner of the house. The only way to avoid this situation, and the possibility of increased tax on your estate, is to be able to prove the amount that each of you contributed to buying the property if you purchased together.

Power control

Being a property owner gives you the right to control what happens to that property, at least as long as you are healthy, solvent, and of sound mind. And, of course, it also helps if you’re around to keep an eye on it. But what happens if you aren’t able to exercise control for one reason or another?

One solution is to grant, or give, power of attorney to your spouse, sibling, adult child, or close friend—someone you trust to act wisely and in your best interest. This attorney-in-fact, or agent, has the legal right to make most decisions you would make if you were able, as well as the authority to buy and sell property and to write checks on your accounts.

A lawyer can draw up the power of attorney for you, specifying the authority you are granting, and excluding those things you still want to control. It’s a good idea for you, as grantor, or principal, to update a power of attorney—or even write a new one—every four or five years so it will be less vulnerable to legal challenges.

Since a general power of attorney is revoked if you become physically or mentally disabled, you can take the additional step of granting durable power of attorney. Unlike a limited or general agreement, durable power is not revoked if you become incompetent, so you’re not left without someone to act for you when you need assistance most. But not all states allow durable power, so check with your legal adviser.

You can also establish a springing power of attorney, which takes effect only at the point that you’re unable to act for yourself. In every case but the last, you can revoke the power at any time or choose a different agent.