RealTown Words

A broker is often asked by buyer clients to advise them on the appropriate form of ownership of real property. The form of ownership is important because
* the existing form of ownership determines who must sign the various documents involved in the sale, such as listing, contract of sale or deed; and
* the form of ownership affects many future rights of the parties. How one takes title to property may have consequences involving income taxes, real property taxes, gift taxes, estate and inheritance taxes, transferability, exposure to creditors’ claims, and probate (or its avoidance).

A broker should be able to discuss various methods of owning property, such as joint tenancy, tenancy in common, tenancy by the entirety, tenancy in severalty, community property, partnership trust, and corporate forms of ownership, but should not recommend a specific ownership form because to do so would constitute the illegal practice of law.

The broker should recommend that the client consult experienced tax or legal counsel, especially if there will be multiple owners, to determine the most advantageous form of ownership for the client. For example, when husband and wife are to take title to property, it may be appropriate for them to hold it as tenants by the entirety, if recognized in that state. However, in certain circumstances—especially if the husband and wife are in a high income tax bracket—this form could be disadvantageous from a tax viewpoint, because the estate tax on jointly held property might be much higher than if title were held in another form. Therefore, a broker who fails to recommend experienced legal or tax counsel may be doing a client a disservice.