Taking Title In Real Estate
Today we have Justin Bates in the studio, talking with Austin Solomon about taking title in real estate. For agents, we cannot give advice on how to take title when purchasing a property. We recommend our clients to consult with an attorney based on your goals in your purchase.
The majority of purchases are either an individual purchasing a property alone (which is pretty straightforward), or a married couple purchasing a property, 90% of the time is purchased as survivorship marital property. What that means is when one of the spouses passes away, automatically the surviving spouse takes 100% ownership of the title to the property. That one is the easy one!
If we are talking about two partners purchasing a property as an investment, they have a few options.
Tenants in Common means if Buyer A dies, that means Buyer B doesn't automatically take the title interest. It would be divided based on how Buyer A has their estate set up. That is a big difference of Tenants in Common versus Joint Tenants with Survivorship.
Joint Tenants with Survivorship is very similar to the martial property with survivorship. If Buyer A dies, Buyer B would automatically assume the interest in the title.
Investors could also set up an LLC or Corporation, and have other terms outlined in such legal agreements, that will vary again depending on the business goals / structure established.
Now let's talk about a boyfriend and girlfriend. This can be a bit more tricky because they do not have the same protections under Wisconsin marital property laws as a married couple would. As far as the law is concerned "a boyfriend and girlfriend" doesn't have a legal designation.
If there is a break-up and they are both in title, it can be a little complex to "unwind the transaction". You have to consider - Who is listed on the loan? Was the property purchased in cash and who paid how much toward that? Who has been paying for the maintenance / repairs? It can get complex depending on the scenario. In the best case, the couple can work together to sell the property or one can buy-out the other.
If the couple is not in agreement, or working together, one would file what's called a Partition Action, which is a lawsuit filed that'd address both agreeing to sell the property or one buying-out the other. If they cannot come to an agreement, that is why is the court would need to be involved and would help work things out legally.
It is recommended that a couple looking to purchase should consult an attorney before purchasing. Even if they don't think the relationship will go south, it's recommended to be proactive and understand the risks involved. You could even have an agreement written up to track expenses / maintenance, or have a joint account that you contribute toward the payments and other home expenses and repairs. You could also put together an LLC, and both be members of that LLC. There is nothing prohibiting buyers from doing that; however, you have to account for that properly when you file your taxes each year. It can be easier to resolve a member-share issue on paper, versus a physical sale a property.
Speaking of LLC's, when would be a good time to put a property in an LLC?
As long as you own the property, you can transfer it into an LLC at any time in the ownership. Of course you can do that when you purchase and close on the property during the transaction, but if you didn't do that you can still have that titled in your LLC while you own it. One of the biggest benefits for many owners is the tax benefit, and the liability benefits when you are dealing with commercial or rental properties.
For people that own multiple properties, it may be helpful even to have multiple LLC's. For example, if you own one of those properties free and clear, and you get sued for personal injury or premise liability, it could lead to a costly lawsuit. Even if you think you're right, and maybe you are, the result still may not end up in your favor. It's recommended to have property insurance for such instances, but there can be circumstances where the property is underinsured or doesn't cover certain claims. You have to protect yourself as well when you're thinking about investment property in the long run.
That wraps up our time today! Special thanks for Justin for his vast insight and knowledge!
Justin Bates, The Bates Legal Group
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