Chapter 4 ________________ Forms of Ownership

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Chapter 4________________ Forms of Ownership
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One or More?

• Sole ownership (estate in severalty)
• Tenants in common
• Joint tenancy
• Community property
• Partnership
• Corporation

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Advantages of Sole Ownership

• Flexibility
• No sharing of profits

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Disadvantages of Sole Ownership

• Capital intensive
• No shared expertise in decisions
• Full responsibility and liability

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Tenants in Common

• Each owner has an undivided interest in the whole
  property.
• Each owners interest does not have to be the
  same size.
• Each owner can independently sell, mortgage, give
  away, or dispose his individual interest.
• Tenancy in common is established in the deed by
  naming co-owners as tenant in common.
• Each co-owner is responsible for his
  proportionate share of property taxes, repairs,
  upkeep, etc.
• If a co-owner dies, his interest passes to his
  heirs or named devisees.
• No right of survivorship (the remaining co-owners
  do not acquire the deceaseds interest unless
  they are named in the will).

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Tenants in Common
One parcel of land Three owners with unity of
possession
C
A
B
What happens if C dies?
Cs heirs
B
A
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Joint Tenancy

• Right of survivorship - when one joint tenant
  dies, his rights to the property are extinguished
  and the other joint tenants are left as owners.
• Four unities must be present
• Unity of time - joint tenancy must be created
  simultaneously
• Unity of title - joint tenants acquire their
  interests from the same source (ex. Same deed or
  will)
• Unity of interest - joint tenants own one
  interest together and each joint tenant has
  exactly the same rights
• Unity of possession - all joint tenants have use
  of the entire property, and no individual owns a
  particular part of it (Note unity of possession
  is the only unity essential to tenancy in common)

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Joint Tenancy with Right of Survivorship
A
B
C
One parcel of land Three owners, four unities
(PITT) Possession, Interest, Time, Title If C
dies?
C
A
B
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Married Persons

• Tenancy by the Entirety
• Community Property
• Separate Property
• Note in the event of divorce, these forms of
  ownership convert to tenancy in common.

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Advantages of Tenancy by the Entirety

• Protects one spouse from conveying or mortgaging
  the couples property without the knowledge of
  the other
• Provides some protection against forced sale of
  property to satisfy a debt judgment against one
  of the spouses
• Features an automatic right of survivorship

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Disadvantages of Tenancy by the Entirety

• Provides for no one except the surviving spouse
• May create tax problems
• Does not replace the need for a will to direct
  how the couples personal property should be
  disposed

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Community Property

• Ten states recognize community property (comes
  from Spanish and French laws)
• Spouses contribute equally and jointly to the
  marriage and should share equally in any property
  purchased during the marriage.
• Each spouse can name in his or her will the
  person to receive his or her 1/2 interest. It
  does not have to go to the remaining spouse but
  does in most cases by default if no other heir is
  stated.

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Separate Property

• Property owned before marriage and property
  inherited after marriage by gift, inheritance, or
  purchase with separate funds is known as separate
  property and is exempted from community property.

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Holding Title
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Partnerships

• General - all partners have unlimited liability
  and illiquidity
• Limited - one partner still has unlimited
  liability and illiquidity of interest
• Limited Liability - provides limited liability
  for all partners
• Joint Venture - partnership organized to carry
  out a single business project. Treated as a
  partnership for tax purposes, but becomes a
  general partnership if more than one project is
  undertaken.

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Additional Ownership Forms

• S Corporations - a popular form of ownership for
  real estate investors because it combines the
  limited liability of a corporation while avoiding
  double taxation. Profits and losses pass through
  as in a partnership.

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Additional Ownership Forms

• Trusts
• Inter Vivos Trust - a trust that takes effect
  during the life of the creator
• Testamentary Trust - a trust that takes effect
  after the creators death.
• Land Trust - in several states, an owner of real
  estate can create a trust where he is both the
  trustor and beneficiary. A third party is named
  as trustee.
• The land trust is a way of converting real
  property into personal property since the
  beneficiary interest is personal property.
• Originally a way to hide true ownership of land.
  Now used to simplify probate issues with owning
  land across state lines.

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Additional Ownership Forms

• Limited Liability Companies (LLC)
• A very common form of co-ownership in the 30
  states where it is a legal form of business.
• Relatively simple to organize, limited liability
  for all owners, and no double taxation.
• Real Estate Investment Trusts
• A organizational form that invests in real estate
  and allows investors to purchase shares much like
  investing in a stock for a corporation.