How to streamline the property transfer process

What is the best way to own property and be able to pass it on at death?

There are many ways you can hold title to real property, which is defined as land and anything built on it. However, the way in which real property is titled will affect how it is transferred during the administration of an estate.

Related: What to know about splitting retirement plans

Subject to the terminology of each state, most people who own private residences are: 

• sole owners

• joint owners with rights of survivorship (the property is owned with another person, and either party can inherit the other party's share)

• tenants in common (an individual owns property with another person, but the heirs of each party inherit their own share)

• tenants by the entirety (a married couple owns property, with each spouse passing it to the surviving spouse)

• owners through an entity such as a corporation, limited liability company (LLC), or partnership.

Each ownership situation has to be dealt with during the estate administration process. You need to make sure you own real estate in a way that will fulfill your wishes upon death and, at the same time, streamline the process of transferring ownership of the property. Estate-planning techniques to avoid probate depend on how you choose to hold title to the property.

Next: The most common way to avoid probate

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The most common way to avoid probate is for spouses to own property as tenants by the entirety. By owning the property together, it passes to the surviving spouse outside of the probate process, avoiding delays.

Another way to avoid probate is for two individuals to own the real property jointly with rights of survivorship. However, you must be careful that this option meets your wishes because you may not want the other owner to inherit your share of the property when considering the total value of your estate as a whole.

Additionally, another way to own real property that allows for the avoidance of probate is with a revocable living trust. The benefit of the trust holding title to the real estate is that you can have the trust document specifically address who will inherit the property without having the need to probate the property.

If a property that you own has a mortgage and you want to place it in a trust, there are additional considerations. You must review the mortgage agreement, and in most cases, get pre-approval of the transfer of property. Generally though, mortgage companies permit the transfer to a revocable trust.

Some owners of real property want to avoid personal liability, especially if they own commercial or rental property. These owners typically create a corporation or an LLC to own the real property. This provides some protection from being personally responsible for the debts or liabilities of the entity. At the time of death, these shares or membership interests in the corporation or LLC pass through the individual's estate through the probate process. In the individual's will, the testator (the person whose will it is) can designate who will inherit the share of the corporation, or allow it to pass to the residual estate.

Also see: ‘Step up’ to estate tax savings under this rule

Holding title as tenants in common will result in the property going through probate. Holding title to property as tenants in common sometimes results in contention with the other owner and the persons who will inherit your share or the other party's share. It is best to discuss these issues with the other owner and the heirs to help alleviate any tension that may occur in the future with new ownership of the real property.

Consult with your estate-planning adviser about the best way to hold your real property so that you have an estate plan that best meets your wishes and streamlines the transfer process.

Next: Can Roth IRAs be accessed prior to retirement?

Can Roth individual retirement accounts be accessed prior to retirement?

Roth IRAs, which first became available in 1998, allow earnings to build up tax free. You don't get a deduction for your contributions, but any withdrawals made after age 59½ are tax free, as long as the account has been open 5 years.

The money placed in a Roth IRA isn't necessarily locked away until retirement. The tax law allows money to be taken out in special circumstances, which include:

College costs. There is no 10% early withdrawal penalty due on any funds taken to pay higher education expenses for the IRA holder or the person's spouse, children, or grandchildren.

First-time home-buying costs. No early withdrawal penalty is charged on up to $10,000 if the money is used to purchase or construct a first home.

In both exceptions, the account holder may have to pay income tax on the withdrawals but no penalties.

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