The real estate you purchase, whether it will be your home, used in your business or will be an investment property, could be your most valuable asset. How your property is titled, or “vesting of title,” as it is often called, is of utmost importance to you. Vesting of title will control several crucial matters regarding the future of your real property, including: (i) who can legally sign documents involving disposition or use of the property; (ii) how the property will be used; and, (iii) the future rights of the parties (or possibly co-owners) to the transaction.
Ownership, or vesting, also involves such important matters as real property taxes, income taxes, inheritance and gift taxes and legal exposure of the property to creditors’ claims. Vesting can also have a significant impact on probate in the event of the death of an owner.
When acquiring real property, one must consider whether the future intended usage of the property warrants holding title individually, or perhaps as a married couple, or in a trust or, if business use is intended for the property, then vesting it in a business entity such as a partnership, limited liability company or a corporation may be best. Nevertheless, regardless of whether the property is titled in an individual, a married couple, a partnership, limited liability company or corporation, there are only four tenancies available for vesting real estate in the Commonwealth of Virginia.
The property is conveyed to one owner, in fee simple, an individual, a corporation, partnership, trustee or limited liability company, which has exclusive use and benefit of the property and the right to dispose of it. This is the only form of ownership available to individual purchasers, corporations, trustees, partnerships and limited liability companies. If this type of conveyance is made to an individual person it is subject to inheritance rights of any present or future spouse. Sale or encumbrance (e.g., placing a loan secured by a deed of trust) of the property is usually possible without concurrence of a spouse, provided the conveyance is done to a bona-fide purchaser, or for adequate and full consideration. A future spouse's inheritance rights attach automatically upon marriage - even though the property may have been acquired before the marriage. The property is subject to the claims of a creditor of the owner.
Tenants in Common - common-law right of survivorship
The property is conveyed to two or more persons, each of whom owns an undivided fractional interest in the property. This form of ownership is subject to the inheritance rights of an owner's spouse. The interest of a deceased owner does not automatically pass to the surviving owners, but instead passes under his or her will (or according to the Virginia statutory descent and distribution rules of intestacy). Any owner may cause the partition of the property, either in kind, or, if that is not practicable, by a court ordered sale and division of the proceeds. The interest of each owner need not be equal. The property is subject to the claims of a creditor of any owner. This tenancy is most often used in shared equity arrangements, or in joint-venture purchases.
Joint Tenants, with common law right of survivorship
The property is conveyed to two or more persons, each of whom owns an undivided interest in the whole property. The interest of one owner who dies passes automatically to the surviving owner or owners. All owners must join in any disposition of the property. The last survivor becomes the sole owner, and as such can then sell, mortgage or devise the property. Any joint tenant may cause a partition of the property. This form of ownership is not normally subject to the inheritance rights of spouses, except possibly as to the final surviving joint tenant. The property is subject to the claims of a creditor of any owner. An important characteristic of this form of ownership is that each joint tenant's interest is equal and each interest must have been acquired concurrently. This tenancy is most often used in inter-familial purchases (e.g., parents assisting son or daughter with purchase).
Tenants by the Entirety (Entireties), with the common law right of survivorship
This is a special type of joint and survivor tenancy which exists only between a married couple. In the event that one spouse dies, the entire property automatically passes by operation of law to the full ownership of the surviving spouse. Both spouses must concur in any disposition of the property. An important feature of this tenancy is that the property is not subject to the claims of the creditors of only one spouse - only creditors of both spouses may attach the property. This is the form most commonly used by married couples in Virginia. A tenancy by the entireties is automatically severed upon divorce of a married couple and, by operation of law, becomes a tenancy in common.
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