3 Questions to Ask if You or Your Clients Own Real Estate in Pennsylvania

There are primarily three (3) ways to hold joint title to real estate in Pennsylvania and
most other states. The manner of ownership will affect how the property will be distributed at the owner’s death. The method of titling can also leave the property at risk to certain claims while both owners are alive, a factor which might be considered when choosing how to own title to property during life.

In Pennsylvania, property owners may hold joint title to real property as Joint Tenants With Right of Survivorship (JTWROS), Tenants in Common (TIC), or Tenants by the Entirety (TBE). A deceased owner’s interest in property held as JTWROS will pass outside of probate directly to the surviving owner(s) upon an owner’s death. A deceased owner’s interest in property held as TIC is subject to probate and passes according to the terms of the decedent’s Will or the laws of intestacy. The surviving owner(s) of property held as TIC might be forced to sell the property in order to provide the deceased owner’s heirs their share of the property interest. TIC also allows an owner to sell their interest in the property without the consent of the other tenants, which can create complications for the other joint owner(s) during the lives of all property owners.

Tenancy by the Entirety is only an option for married couples and provides for similar distribution upon the death of an owner as JTWROS, with the deceased owner’s interest passing automatically to the surviving owner upon death. However, in Pennsylvania, and many other states, TBE offers additional creditor protection benefits for the real estate, since creditors of only one spouse cannot reach the property. This protection extends to TBE property that is transferred to a spouses’ joint revocable trusts as long as both spouses remain beneficial owners of the Trust.

The benefits and disadvantages of titling choices should be reviewed carefully with an estate planning attorney to determine if the manner of titling aligns with an individual’s testamentary goals. Following are a few important questions to ask your attorney:

1. Who Will Own the Property if One Owner Dies?  If a brother and sister jointly own a property and the brother wants his adult child to inherit his interest in the property, this will not be accomplished if the property is held as JTWROS. In order for the adult child to receive his interest, the brother would need to hold title with his sister as Tenants in Common and leave explicit provisions in his Will distributing the property interest to his adult child. (Without these provisions, if the brother marries or divorces, intestate succession laws could apply and transfer the property interest to a spouse.) Another way to ensure the child receives the property interest is to hold the property in Trust. The Trust agreement can be structured to benefit the brother and sister, designate and provide specific instructions for future beneficiaries, protect the property from beneficiaries’ creditor claims, and allow the property to pass outside of probate.
2. What if One Owner is Involved in a Lawsuit or Divorce?  Judgments imposed on an owner might attach as liens to the property depending on how title is held. One of the benefits married couples enjoy, through Tenancy by the Entirety ownership, is that a judgment against one spouse will not attach to the property. However, the property might be at risk to claims jointly pursued against both spouses. Properties held as JTWROS and TIC could be vulnerable to a judgment against an individual owner in the event of a lawsuit, bankruptcy, or divorce.
3. Are there Gift Tax Consequences if the Sole Owner of a Property Chooses to Add a Joint Owner to the Deed?  If the individual added as joint owner is not married to the other owner, the transaction might be deemed a transfer for gift tax purposes. Prior to changing how title is held, a property owner should always consult with an experienced tax and estate planning attorney to discuss potential transfer tax implications that might result upon a change in the legal title to real estate.

Individuals who are concerned about real estate included in their estate plan should itemize properties for review during an estate plan review meeting. Understanding the practical considerations and tax implications of different methods for owning real estate titled in Pennsylvania, and other states, will help clients to properly plan for the current ownership and ultimate distribution of real estate, as well as for the potential acquisition of future investment properties.

A consultation with an experienced tax and estate planning attorney can help ensure an optimal title choice is made for real estate currently owned and to be acquired by clients. To arrange a complimentary consultation with attorney Philip Levin, Esq., for the purpose of establishing an estate plan to achieve your wealth transfer planning goals, please call The Levin Law Firm at (610) 977-2443.