[CFP, Estate] 11, Types of Property Ownership

Understanding property ownership is fundamental for any CFP candidate preparing for the estate planning section of the exam. While the concept may seem straightforward, mastering the nuances of each ownership type and their implications on probate and taxation is crucial. Today, let's explore the five most frequently tested types of property ownership:

• Sole Ownership

• Tenants in Common

• Joint Tenancy with Right of Survivorship (JTWROS)

• Tenancy by the Entirety

• Community Property

🔍 Main Concept Breakdown

1. Sole Ownership

• Definition: One person holds full legal rights to the property.

• Probate: Property passes through probate at the owner's death.

• Taxation: Included fully in the owner's gross estate.

• Example: Tom solely owns a house worth $500,000. Upon Tom’s death, the property goes through probate and is fully taxable in his estate.

2. Tenants in Common (TIC)

• Definition: Two or more individuals own property with distinct, divisible interests (can be unequal shares).

• Probate: Each owner’s share passes through probate.

• Taxation: Each owner’s share is included in their gross estate.

• Example: Amy and Brian own a rental property as TIC, Amy owns 30%, Brian 70%. Upon Brian’s death, his 70% share goes through probate and is included in his estate for tax purposes.

3. Joint Tenancy with Right of Survivorship (JTWROS)

• Definition: Two or more individuals own property equally, and upon the death of one, the property automatically passes to surviving owners.

• Probate: Property bypasses probate entirely.

• Taxation: Ownership portion is included proportionally in the deceased’s estate, unless married (then 50% inclusion applies).

• Example: Carlos and Diane own a vacation home as JTWROS. Carlos dies, and Diane automatically becomes sole owner without probate. Carlos’ portion (assume 50%) is included in his estate for taxation.

4. Tenancy by the Entirety

• Definition: Available only to married couples; property is jointly owned with survivorship rights.

• Probate: Automatically passes to surviving spouse, bypassing probate.

• Taxation: Typically, half of the property's value is included in the estate of the first spouse to die.

• Example: Emma and Fred own their primary residence as tenancy by the entirety. Upon Fred’s death, Emma automatically inherits the home, avoiding probate. Fred’s estate includes 50% of the property value.

5. Community Property

• Definition: Applies in community property states; assets acquired during marriage are jointly owned.

• Probate: Half of community property is subject to probate upon death.

• Taxation: Both halves receive a "step-up" in basis at first spouse’s death, beneficial for capital gains.

• Example: Greg and Helen live in California (community property state) and own stocks valued at $600,000 acquired during marriage. Upon Helen’s death, her half ($300,000) passes through probate, and both halves receive a step-up in basis, reducing future capital gains.

⚠️ Common Mistakes on the Exam

📌 Memory Tips with Emojis

• 🏠 Sole Owner = Solo Probate

• 🔗 TIC = Linked but Separate (Probate each)

• 🤝 JTWROS = Instant Survivorship, No Probate

• 💍 Entirety = Married Only, Automatic Pass

• ⚖️ Community = Half Probate, Full Step-up

🔖 Study Practice Scenario

Test your understanding:

• Answer: Half the condo ($400,000) is subject to probate. Both halves ($800,000) get a step-up in basis, benefiting Linda for future capital gains.

🌟 Further Resources

Mastering property ownership can significantly improve your CFP exam confidence and score. For more podcasts, videos, and study materials tailored specifically to CFP candidates, visit Open Exam Prep.

Happy studying, future CFP professionals! 📖✨