How title is listed is important

The manner in which homeowners hold title to their properties has significant legal ramifications. Consequently, it's not wise to leave this important decision to chance.

Typically, realty agents won't ask how you would like the property titled. Instead, they'll simply insert the phrase "as above" on the line in the contract that asks who will be holding the property, referring to the person or persons whose name or names appear as the buyer.

Some -- but not all -- title attorneys or escrow agents will ask how you would prefer the title to read. But often the question isn't posed until you sit down at the settlement table, and by then, it's too late to give any real thought to your options.

Since how ownership is held will determine how the house will be treated in the event of death or divorce and the amount of taxes that might be incurred, you shouldn't make a snap decision at a time when you probably already are stressed. It's far better to look at your choices beforehand, when you have a clear head and can make sound judgments.

While the lender dictates whose names are on the deed, which is the legal document that conveys title in the property from the seller to the buyer, it is up to you to determine in what form the title is held.

Generally, whoever is on the promissory note must be on the deed. There can be more names on the note, but at the very minimum, most lenders require that everyone on the note must also be on the deed. The same is true for the deed of trust, or mortgage, which is the document with which the buyer puts up the property as security for the loan.

With that in mind, and with the caveat that what follows should not be taken as legal advice, here's a closer look at some of the more common forms of ownership.

Tenancy by the entirety. In most cases, this is the correct way for married couples to hold title. In fact, it is available only to married couples.

Tenancy by the entirety (TE) creates an estate in which each spouse has an undivided interest in the property, or the equal right of possession and enjoyment during their joint lives. It also vests each spouse with the right of survivorship so if one dies, his or her interest automatically transfers to the survivor.

Since probate is unnecessary on the death of the first spouse, the property won't be tied up in court. Instead, it can be sold right away if that's necessary. Also, the survivor takes title to the share of the property attributable to the deceased at its "stepped-up bases," meaning its fair-market value as of the date of the spouse's death.

Equally important, the individual creditors of either spouse cannot attach a lien on a property held as TE. If a judgment is against both of you, the creditor can put a lien on the house and eventually seize it, but not if the judgment is against one of you or the other.

Tenancy in common. Under this alternative, each spouse owns a set but not necessarily equal percentage. And there is no right of survivorship. Thus, the decedent's share vests with whoever is named in the will. And unless the deceased holds his or her share in trust, it goes through probate just like the rest of his or her estate.

Furthermore, the share that transfers to the survivor counts against the federal estate tax credit. So if the husband is very ill and may not survive, it might be a good idea to retitle the house as tenants in common with him holding a 99 percent share. That way, when he dies, his share will pass at the date-of-death value to the wife. And then, if she must sell shortly thereafter, there may be less capital-gains tax to pay, if any at all.

Tenancy in common is often the preferred method of ownership for unrelated couples or remarried couples that want to leave their share to children from previous marriages.

Co-owners may have unequal shares, and each can convey his portion without the consent of the other. When a tenant in common dies, his share is passed on according to his will or, if there is no will, by state law as it applies to intestate succession. But there is no protection from creditors. A creditor can take whatever percentage of ownership either party has.

Joint tenancy with right of survivorship. This is similar to TE, except that the property is not protected from the individual creditors of each owner.

Another potential drawback is that, regardless of what the deceased's will says, his share will pass to the joint tenant. In other words, it makes no difference that a father who buys a house as a joint tenant with his daughter wants to leave his share to another offspring, say, his son. The law says it will pass only to the joint tenant, or, in this case, his daughter.

Because of the right of survivorship, joint tenancy may be the best way to hold title for parent and child owners. Since it is more likely that the parent will die sooner, the child will receive the parent's share.

But under this form of ownership, all joint tenants are presumed to have an equal share, a situation that may leave the co-owner parent a bit uneasy. Also, in many states, one co-owner can dissolve the joint tenancy without the other's approval, which might not make any of the owners very comfortable.

Lew Sichelman has been covering real estate for more than 30 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance-industry publications.