OPTIONS FOR HOLDING TITLE TO REAL ESTATE
If one person holds title to land, there are few, if any decisions to be made about holding title. In co-ownership situations, the property owners will have to decide how to “take” title to their land. When more than one person, such as a husband and wife or business partners, owns title to a piece of real property, the law of the State of Illinois allows for title to be held between the owners in three ways: as tenants in common, as joint tenants with the right of survivorship, or as tenants by the entirety. In most instances, the owners may choose the manner in which they hold title and their decision may be changed in the future if the owners agree to such a change and the change does not violate any other laws. Each manner of holding title will result in different circumstances of transfer upon the death of an owner and will also determine the rights and abilities of outside creditors to attach the property.
TENANCY IN COMMON
The most basic form of title is as “tenants in common”. In Illinois, if no manner of title is stated, co-ownership is presumed to be as tenants in common. Owners of property as tenants in common own an undivided fractional interest in property. That is, although they may own unequal share of property, the owners may still each use the entire property. The physical property is not divided. This is known as unity of possession.
Tenants in common owners each hold separate ownership interests which can be sold, conveyed or transferred without the consent of the other owners. When one of the owner’s dies, that share of land is transferred by the owner’s will or by the intestacy statute and the owner’s heirs or legatees will become the new owners of that share.
Land held as “tenants in common” may also be “partitioned” or encumbered by creditors.
JOINT TENANCY
Another form of title is as “joint tenants with right of survivorship”. This form of ownership may be attained by satisfying the legal requirements of the “four unities” of ownership. These “four unities” are time (all tenants must take title at the same time), title (all tenants must take title by the same document), interest (all tenants must have an equal interest), and possession (all tenants have an undivided possession right).
As in tenancy in common, all owners have an undivided interest in the whole property and can use the entire property. The main difference from tenancy in common is that there is a unity of ownership. Upon the death of one of the owners, any remaining owners will take the rights of the deceased owner. Thus, the remaining owners are assured no new persons will have title to their land. The property will pass to the surviving owners outside of the probate process. In fact, even if a deceased owner’s will designates that the property pass to some other individual, that request will not be satisfied.
A joint tenancy may only be created expressly by a deed. In Illinois, the joint tenancy relationship can be dissolved at any time upon the conveyance of a joint tenants interest to himself or any other person regardless of the consent of the co-owners. The joint tenancy of any other co-owners, however, remains unaffected.
Property held in Joint Tenancy may be partitioned, sold, or encumbered without the consent of the other owners.
TENANCY BY THE ENTIRETY
The final form of holding title under Illinois law is a hybrid of joint tenancy that is reserved only to married couples and provides extra protection to marital property. The form requires the “four unities” of joint possession plus a fifth: marriage, must be present to hold title in this manner.
This method of holding title has all the benefits of joint tenancy in that the survivor of the first owner to die will take title to the entire property outside of probate, but it also includes the additional benefit of protecting the property from some creditors. A home held as “tenants by the entirety” may only be reached by creditors of joint debts of a husband and wife. In the case of non-joint debts of a husband and wife, the property may not be partitioned, sold, or encumbered without the permission of both spouses. Further, neither spouse may convey their half interest without the consent of the other.
The courts of the State of Illinois have determined that specific terminology must be employed to create this form of tenancy. The deed must indicate that the parties are married and specify the exact words creating the tenancy. A typical grantee clause in a deed would look like this: “to John Doe and Jane Doe, his wife, not as tenants in common, nor as joint tenants with the right of survivorship, but as TENANTS BY THE ENTIRETY.”
Please note: many states have a provision for an automatic tenancy by the entirety for married couples who take their homes as joint tenants. ILLINOIS IS NOT ONE OF THESE STATES.
A tenancy by the entirety may be terminated by a court ordered sale to satisfy a joint debt of husband and wife, by the death of either co-owner, by the divorce of the co-owners or by the agreement of the co-owners.
DEEDS AND CHANGED CIRCUMSTANCES
In many cases, home buyers do not even consider the manner in which they would like to hold title. It is however quite important as the method of holding title has serious estate tax consequences and consequences as to creditors. Most home buyers and property owners should review the manner in which they hold title to their property to determine if the title is held in the most advantageous manner. Making a change in the manner of holding title is as simple as preparing and recording a properly drawn and executed deed.
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