By: Attorney William Rosa| Partner
Whenever you are acquiring real estate it is important to have your attorney assist you in determining the manner in which you will hold title to the property. The manner in which you hold title is important for a variety of reasons including liability protection and succession or estate planning. In Massachusetts, there are four basic tenancies that are used to hold ownership interests in real estate.
The first and simplest is a sole tenancy in which an individual holds title to property in his or her name. While this is a very simple type of tenancy, it offers no liability protection from third parties because any action against the individual could give the creditor an opportunity to attach the real estate for satisfaction of obligations owed. If you own property in your own name, you should seriously consider some sort of trust or other entity to hold title. We will deal with trust and entity options in a future blog.
Tenants in Common
The second type of tenancy is tenants in common. In this type of tenancy, two or more people hold title as tenants in common. In its simplest terms, this means that if there are two individuals who hold property as tenants in common, each individual owns a percentage interest in the property, most commonly 50/50. Should one of the individuals pass away, his or her share would pass to their heirs or as dictated by their will. This type of tenancy allows individuals to provide for their heirs upon their death. The drawback to this type of tenancy is that it is necessary for each of the individual owners to have some sort of estate planning in place so that it is clear who is going to inherit that person’s share of the property upon their death; otherwise, absent a will, the deceased individual’s share will pass to his or her heirs as dictated by Massachusetts’ law. Without a clear path of ownership through estate planning, the surviving tenant in common may find him or herself with “new partners” that he or she may not have contemplated, thus complicating the ownership and control of the property.
The third type of tenancy is joint tenants. In this tenancy, two or more individuals own property as joint tenants. Should an owner die, that individual’s share in the property would pass to the surviving joint tenant(s), the ultimate result of which would be that one individual will end up owning 100% interest in the property after all other owners have died. This type of tenancy works very well in family situations in which property might be left to three children with the idea that the surviving child will end up with a 100% interest. However, if the intention is that the heirs of the individual children (i.e. original owner’s grandchildren) should inherit their parent’s share, then this type of tenancy will not work and the tenants in common format might be more appropriate. A married couple can also own property as joint tenants, in which case the surviving spouse will end up with a 100% interest in the property.
Tenants by the Entirety
The fourth tenancy is a hybrid of the joint tenancy scenario that is only available to legally married couples. This type of tenancy is called tenants by the entirety. The advantage of holding property as tenants by the entirety over a joint tenancy is that it offers some liability protection against creditors of one spouse claiming an interest in the other spouse’s interest in the property. In many instances, this will thwart a creditor from being able to have an attachment against the property that will be of value to them should the non-debtor spouse be the surviving spouse. It is our recommendation in general, that a married couple should always avail themselves of the husband and wife tenancy by the entirety type of tenancy. That having been said, this tenancy is limited to a couple’s primary residence so this would not be appropriate tenancy for a second home or an investment type property.
A caveat to all of this information is that while there are some third-party protections built into the type of tenancy, tenancies are never a substitute for appropriate insurance especially in an investment property situation, or property that is held for business purposes. Those types of properties would generally be better held in a trust or other entity as will be discussed in future blogs.
At the time you are acquiring property, it is important that you have a discussion with your attorney relative to the type of tenancy that would best serve your needs. There are many nuances to each type of tenancy and individual circumstances to be considered at the time you take title to real estate. Tenancy can be changed at any time; however, document preparation and recording costs can become costly so it our recommendation that a meaningful discussion take place at the time you acquire the property.
I hope that this information is helpful in alerting you to the tenancy options that are available in Massachusetts. Additionally, if you have any questions, please call the attorneys at Wynn & Wynn, P.C. at 1.800.852.5211 or request a free consultation.