Real Estate Salesperson · Forms of ownership, transfer and recording of title · 7 min read
Marital Property, Trusts and Business Entities
- Distinguish between tenancy by the entirety and community property, including survivorship rights, conveyance requirements, and treatment of separate assets.
- Explain how trusts are created, administered, and classified, contrasting inter vivos, testamentary, revocable, irrevocable, and land trusts.
- Identify how title is held by business entities, including corporations, partnerships, LLCs, joint ventures, syndicates, and REITs, and describe the liability profile of each structure.
Tenancy by the Entirety
Tenancy by the entirety is a specialized form of co-ownership available exclusively to married spouses, or legal partners where recognized by state law. Because marital property laws vary significantly across jurisdictions, tenancy by the entirety is recognized only in certain states. It is built upon the traditional common-law concept that a married couple represents a single, indivisible legal unit. To exist, it requires the four unities of joint tenancy, possession, interest, time, and title, plus a fifth unity: marriage.
A central feature of tenancy by the entirety is an automatic right of survivorship between spouses. When one spouse dies, the surviving spouse automatically acquires full title in severalty without the need for probate. Because of this built-in protection, neither spouse can defeat the other's right of survivorship by conveying or willing the property to an outside party. In practical terms, neither spouse can unilaterally convey or encumber the entire property held in tenancy by the entirety, although specific rules concerning an individual spouse's interest vary by state.
This ownership form also offers unique debt protections in many jurisdictions. In many states, tenancy by the entirety protects property from collection on a debt owed by only one spouse, though creditor rights vary by state. However, debts and judgments incurred jointly by both spouses can result in valid liens against property held in this form. If the marriage ends, divorce generally terminates a tenancy by the entirety, and the resulting form of ownership depends on state law and any divorce decree.
Common mistakes
- Believing that an LLC or corporation with multiple owners holds real estate as tenants in common or joint tenants; because the entity is treated as a single legal person, title is held in severalty.
- Assuming traditional community property automatically includes a right of survivorship; unlike tenancy by the entirety, a spouse in a traditional community property state may dispose of their one-half interest by will unless a specific survivorship designation is used.
- Confusing the roles in a trust by assuming the beneficiary holds legal title; the trustee holds legal title, while the beneficiary holds a beneficial interest.
- Believing that one spouse can unilaterally convey or encumber the entire property, or defeat the other spouse's survivorship right by will; rules concerning transfers or encumbrances of an individual spouse's interest vary by state.
Key points
- Tenancy by the entirety is a form of co-ownership recognized in certain states exclusively for married spouses (or legal partners where recognized) requiring the four unities plus marriage, and it includes an automatic right of survivorship.
- Under tenancy by the entirety, a surviving spouse acquires full title in severalty upon the other spouse's death, and neither spouse can defeat this survivorship right by will or conveyance.
- In community property states, assets acquired during marriage through effort are community property owned equally (undivided one-half interest), while separate property consists of assets owned prior to marriage or acquired as individual gifts or inheritances.
- Traditional community property does not inherently include an automatic right of survivorship, allowing each spouse to direct their one-half interest via a will, though some states permit community property with right of survivorship.
- A trust may be created by transferring property to a trustee or by an owner declaring that they hold it as trustee; real estate properly placed in a living trust can generally pass outside probate upon the trustor's death.
- A land trust places legal title with a trustee while the beneficiary holds a beneficial interest (often treated as personal property), offering privacy on the public deed.
- When a corporation, partnership, or LLC is the sole owner of real estate, it holds title in severalty; it can also co-own real estate with another party.
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