Category: Real Estate

Your real estate encompasses not only your primary residence but also any vacation homes, rental properties, or even vacant land you may own. The ideal form of ownership varies depending on the type of property and your individual circumstances.

Your Primary Residence

How you own your primary residence affects your control over it while you are alive, its level of protection from creditors, and what happens to it after you pass away. The most suitable way to own your home often depends on your goals and the types of ownership for real estate that are available in your state.

A Vacation Home

For some families, their vacation home has significant financial and emotional value. How you hold title and what happens to the property in the future are important considerations. Vacation homes may also be treated differently from primary residences for tax purposes, so careful planning is essential to ensure that what you would like to happen with your vacation home is accomplished.

Rental Property

Because rental property serves as an income stream rather than a residence, protecting it from lawsuits and creditors is usually the primary concern and main goal for rental property owners. As a landlord, you may face a higher probability of lawsuits arising in connection with the property as renters come and go.

Transferring ownership of the rental property to a limited liability company (LLC) (discussed below) is one potential option. One benefit is that any creditor is generally limited to the assets of the LLC, so, for example, if a renter is injured on the property, they can seek satisfaction of any claims only from other accounts and property owned by the LLC, not from your personal accounts and property or those of any other members of the LLC. In addition, ownership by the LLC may protect the rental property from your personal creditors. However, if you are forming a single-member LLC, it is important to have us check state law to ensure that creditor protection is available.

You can own title to real property in the following ways:

Sole Ownership

Owning your home in your own name allows you to take advantage of certain tax benefits that may be available for primary residences. While you have full control over the real estate during your lifetime, your primary residence will not automatically transfer to your heirs at your death without additional planning; it will likely need to go through the lengthy, expensive, and public court process known as probate first.

Tenancy by the Entirety

Tenancy by the entirety is a type of ownership available only to married couples in specific states. This ownership structure treats both spouses as one unit who own the home together, so neither spouse can sell or mortgage the home without the other’s consent. In many states, tenancy by the entirety also protects the home from the creditors of one spouse. In other words, a creditor of only one spouse generally cannot force the sale of the home to satisfy that spouse’s separate debt. When one spouse dies, ownership of the property automatically transfers to the surviving spouse, avoiding probate.

Revocable Living Trust

Another option is to place your primary residence in a revocable living trust. This type of ownership allows you to retain control of your home during your lifetime while ensuring it transfers according to your wishes without court involvement upon your passing. In some states, it may be possible to preserve certain protections, such as tenancy by the entirety when the home is held in a joint revocable trust, but this is not always the case.

If protecting your home from creditors during your lifetime is your primary concern, an irrevocable trust may be the appropriate choice. However, irrevocable trusts may require you to give up some control of the property during your life because the trust owns the home and manages it according to rules you set when you created the trust.

Joint Ownership or Tenants in Common

In a tenants-in-common ownership structure, two or more people own property together. Each owner can specify in their estate plan what happens to their share. However, one co-owner’s creditors may be able to claim the debtor’s share, potentially putting the entire property at risk of liquidation to satisfy that co-owner’s outstanding debt. In addition, when one co-owner dies, probate may become necessary to transfer their share.

Protection from Creditors

In some situations, your primary residence may have extra protection under the law if you ever face financial difficulties, such as bankruptcy. Many states provide a homestead exemption, which can help protect part or all of the value of your home from certain creditors. Protections may vary by state and may not cover all types of debts, so meeting with a knowledgeable professional is important if you have concerns.

Ownership by a Limited Liability Company

Although not commonly used to hold a primary residence, an LLC can be used to hold other real estate, such as your vacation home or investment property, by creating a legal separation between you and the property. This option generally protects your personal assets from lawsuits or creditors arising from the use of the property. With an LLC, you can also establish rules for use, maintenance, and decision-making. You may consider this option an ideal solution if multiple family members or partners share ownership.

Having an LLC own your vacation home provides limited liability from outside claims. Creditors of the LLC (e.g., a guest who is injured on the property) generally cannot reach your personal assets in addition to the LLC’s assets; the LLC’s liability is limited to its assets. At the same time, lawsuits against you as an individual generally cannot reach the property, which can be incredibly helpful if you wish to pass the vacation home on to the next generation without worrying about each new member’s financial situation. While LLCs provide liability protection, they do not cover all situations. For example, if you are the sole member of an LLC, certain creditors may still be able to reach the property to satisfy claims.

It is important to consult with us and your tax advisor to ensure that transferring your vacation home to an LLC will not cause an increase in your property taxes or other unintended consequences, especially if the property has been in your family for a long time.

Contact Us Today

Whether you are concerned about your primary residence, a family cabin, or rental property, we are here to assist you in protecting your valuable real property. Given the various considerations in selecting a form of ownership, it is important to have the right advisors by your side. Contact us to discuss your current and future real estate ventures and the best way to protect them for generations to come.

Real estate can be owned in several different ways. The form of ownership, or how your property is titled, can determine how much control you have over it, how vulnerable your property is to creditor claims and lawsuits, and what will happen to it at your death.

Individual Ownership

One of the most common ways people own real estate is as a sole owner. As the sole owner, you have full control over the real estate. You can mortgage it or transfer it to anyone you choose while you are alive and have capacity. However, your real estate could potentially be exposed to creditors’ claims. At your death, your real estate will transfer to the beneficiaries named in your estate plan (or, if you have no plan, according to state law). If you do not have an estate plan (and rely instead on state law) or you have a will-based plan, probate court involvement will be required to transfer ownership to your heirs. Probate can be time-consuming, public, and expensive for your loved ones.  

Tenants in Common

Tenants in common is another form of ownership in which multiple individuals own real estate together. Unlike other forms of ownership, when several people own real estate as tenants in common, the ownership interests held by each individual do not have to be equal. One person may own a 25 percent interest (also called a share), while the other owns a 75 percent interest. Each co-owner can generally transfer or mortgage their interest as they wish. However, the more co-owners there are, the greater the likelihood of creditor issues involving one or more of them. Although creditors can collect from only the co-owner who owes them money, they may be able to force a sale of the real estate to satisfy their claim. Upon a co-owner’s passing, their ownership interest transfers to whomever the co-owner has specified in their estate plan (or by state law if no estate plan was prepared). Both options require the property to go through the probate process to transfer ownership to the co-owner’s heirs.

Joint Tenancy

In most states, joint tenancy is the same thing as joint tenancy with right of survivorship. Two or more individuals (joint tenants) each own an equal share in the real estate, and each joint tenant can transfer their interest to another person (though doing so may end the joint tenancy and result in a tenancy in common). Unlike tenancy in common, joint tenancy with right of survivorship interests automatically pass to the surviving co-owners upon the death of any joint tenant, avoiding the probate process. One downside of joint tenancy is the exposure to creditors. Because there are multiple co-owners, creditors of any one of them can generally go after that co-owner’s interest in the real estate to satisfy their debts or claims. The creditor may also be able to force a sale of the real estate, even if the other co-owners oppose it.

Tenancy by the Entirety

In some states, spouses can own real estate as tenants by the entirety. Because spouses are considered one unit under tenancy by the entirety, one spouse generally cannot transfer or mortgage the real estate without the other spouse’s consent. With some exceptions, one spouse’s creditor cannot go after real estate that is owned as tenants by the entirety to satisfy the creditor’s claims. At a spouse’s death, the surviving spouse automatically becomes the sole owner, which keeps the real estate and its value out of probate.

In a Trust

Another option for real estate ownership is to transfer it to, or have it purchased by, a trust. As the trustmaker, you can establish rules for the use of the real estate, appoint a person (sometimes yourself) to oversee its maintenance, and allow others (sometimes yourself) to enjoy it. However, it is important to note that the control and benefits available to you can vary depending on what type of trust you use. If the real estate is held in a revocable trust that you created, you are generally free to manage and use the property however you see fit. If the trust is irrevocable, the analysis becomes more complicated. While a primary residence, with or without a mortgage, can generally be transferred to a trust, other properties with a mortgage may first require bank approval before being transferred to a trust to ensure the transfer does not cause the mortgage to become due in full. One of the primary benefits of transferring ownership of your real estate to a trust is that the property does not have to go through the probate process at your death; instead, the trust terms dictate how the property passes, and the transition happens outside the probate process.

By a Limited Liability Company

Another entity that can own real estate is a limited liability company (LLC). Instead of you owning the real estate, you own a part of the LLC (known as a membership interest), which is transferred at your death according to the terms of the LLC operating agreement or your estate planning documents (or, if not addressed in the operating agreement or estate plan, based on state law). In the operating agreement, you can also include rules instructing how the real estate is to be used and managed and outline rules pertaining to the membership interests in the LLC. One major benefit of using an LLC is limited liability. If a lawsuit is filed based on a claim arising from the real estate or if a creditor seeks to satisfy a claim, the only assets available to satisfy any judgments or creditors are typically those owned by the LLC. In some states, if you have personal creditor issues, the creditors may be unable to access the LLC to satisfy their claims against you. These asset protection benefits may vary depending on state or federal law and your unique situation. If this is a concern for you, we encourage you to call us as soon as possible.

Protect Your Property

Regardless of how you think you own your real estate and how it will transfer at your death, it is important that you review your deed and accompanying estate plan and confirm your understanding with an experienced attorney. The title of your real estate can play a significant role in how your estate plan is set up and how your assets are ultimately distributed. If your real estate is not properly titled, it can completely undo your estate planning intent. Contact us today so we can review your title and ensure your estate plan protects your property for future generations.

The allure of a foreign land—perhaps where the weather is milder, the pace of life slower, and the cost of living lower—is a dream for many Americans who want to escape our country’s fast-paced, high-cost living. That dream can become a reality, and a tangible investment, for Americans who purchase a home overseas. 

Wealthy individuals are leading the trend of Americans buying properties outside the United States, but they are not alone. Americans with average incomes, especially people who work remotely and retirees, are exploring overseas real estate markets in places such as Costa Rica, Panama, and Portugal in search of a better quality of life and a bigger bang for their buck. 

However, living abroad is very different from spending a few weeks there. In addition to the challenges of adapting to a foreign culture, prospective buyers must be aware of the financial, legal, and tax implications of buying real estate abroad before signing the dotted line. 

Finding the American Dream Outside America

Some US citizens are looking abroad in search of a better lifestyle at a reduced cost. About 5.5 million Americans currently live overseas, and more may be looking to make the move in search of an American dream that is eluding them in America.

A 2024 Coldwell Banker report found that, amid surging US home costs and the rising cost of living, 40 percent of US consumers with household income of over $1 million planned on buying a home overseas over the next 12 months, while two-thirds planned to purchase a home abroad in the next five years. Also, according to a recent Harris Poll, 4 in 10 Americans have at least considered moving or plan to move abroad. 

The average US household’s monthly expenses are now up to nearly $6,500, while in a country such as Belize, it is possible to live comfortably on about $2,000 per month. Healthcare also tends to be cheaper overseas. Costa Rica, for example, provides high-quality medical care at a significantly lower cost than in the US; hospital visits in Costa Rica typically cost about half as much as they do in the US. 

No matter how much they earn, Americans from different backgrounds and income levels typically want the same things: success, prosperity, good health, and upward mobility (and perhaps, a bit of room to spread their wings—preferably somewhere warm). 

Navigating Uncharted (Legal) Territory

With international travel faster and more comfortable than ever, and remote work unshackling us from the office and a fixed address, Americans of all ages and economic stripes are entering the international real estate market as investors, retirees, digital nomads, and lifestyle seekers. 

While the romantic appeal of a new life in a different country is undeniable, the practical realities—including the legal, financial, and estate planning considerations of foreign real estate ownership—can convince even the most idealistic modern pilgrim that the move is not just a permanent vacation. 

Prospective buyers who are braced for culture shock may not be prepared to navigate the legal framework of their chosen destination, where issues such as mortgages, taxes, and property and inheritance laws can differ significantly from those in the US. For example, some countries restrict foreign ownership, impose specific registration requirements, or limit how property can be used or transferred. 

The following are some of the issues you may have to navigate as a nonresident buyer: 

Tax Responsibilities

Owning foreign real estate usually triggers tax obligations in both the US and the foreign country. As a US citizen, your worldwide assets, including foreign real property, are subject to US estate tax. Profits from selling foreign real property are generally subject to US capital gains tax, but exclusions may apply if it was your primary residence. 

You could also be subject to local property taxes, income taxes on rental income, and capital gains taxes in the foreign country, in addition to less-known local taxes, such as Portugal’s annual wealth tax (called AIMI) on high-value properties; Spain’s deemed rental income tax even if the home is vacant; and Thailand’s Specific Business Tax (SBT) on the sale of property sold within five years of purchase (unless the property is used as a personal residence).

When buying property abroad, you may need to file US tax forms such as the FBAR (FinCEN Form 114, Form 5471, or Form 8858)—but only if you hold the property through a foreign entity, have foreign bank accounts tied to the property, or operate it as a foreign branch. These forms may not be required if the property is owned in your name with no foreign financial accounts.

To avoid double taxation, you may be able to claim a foreign tax credit on your US return for taxes paid to the country where the property is located. If you eventually sell the property and pay capital gains tax abroad, this credit may help offset your US tax liability.

US Estate Plans

Estate plans in the US, including wills or trusts, may not seamlessly govern foreign real estate. Many jurisdictions reject US wills if they do not meet local formalities (e.g., notarization, language requirements, or specific witnessing protocols). If a will is deemed invalid under foreign law, the property may be distributed under that country’s intestacy rules, which can contradict your intended wishes.

Trusts pose further hurdles. Civil law countries—including Italy, Chile, and Portugal—often do not recognize the concept of a trust as it exists under US law. This means that even a properly drafted US trust may be ignored or deemed legally ineffective for handling real estate abroad. In Portugal, for example, long-standing ambiguity around the recognition of trusts has caused complications for foreign owners relying solely on US planning tools.

One potential workaround is to execute an international will under the 1973 Washington Convention on International Wills. This treaty provides a standardized format for wills intended to be recognized across multiple countries. An international will must be in writing, signed by the testator in the presence of two witnesses and an authorized person (such as a notary), and properly attested. 

The validity of an international will under this convention depends on whether the relevant countries have signed the treaty and whether their local laws allow for the intended distribution of assets. While the federal government has not ratified the treaty, many states, including California, Illinois, and New York, have enacted the Uniform International Wills Act, allowing residents in those jurisdictions to create wills intended to be internationally valid under the convention.

Forced Heirship and Inheritance Rules

Countries with forced heirship rules can also disrupt US-based estate plans. These inheritance rules stipulate that family members, typically spouses and children, are legally entitled to inherit a predetermined portion of the deceased’s estate, regardless of what is stated in their will or trust. 

In Germany, for example, Pflichtteil (forced share) entitles spouses, children, and, in some cases, parents to 50 percent of what they would have received under intestate succession. Brazil, Portugal, Italy, and Mexico (depending on applicable local law) enforce similar inheritance rules. 

If forced heirship is a concern for foreign homebuyers, they may consider purchasing property in jurisdictions without forced heirship laws, such as the UK, Ireland, or certain Caribbean islands, where the legal framework aligns more closely with US estate planning principles and allows for greater flexibility in directing how assets are distributed.

Dual Counsel for Expat Buyers

Perusing overseas real estate listings can have your head spinning at the possibilities. But foreign buyers who do not know the local laws—and do not work with an attorney at home and in the country where the property is located—could face dizzying complications. 

To avoid costly mistakes that could put your investment—and your legacy—at risk, engage counsel from both jurisdictions who can help you with cross-border planning issues to align foreign and domestic requirements. If you are looking to plan for property you own in a foreign country, call us.

A deed is a legal document used to transfer real property ownership rights from one person or entity (the grantor) to another (the grantee). In many cases, this transfer occurs due to the property being sold, with the seller transferring the property to the buyer. Typically, a deed is recorded with the local county recorder of deeds. Recording the deed gives the public notice that the grantee now legally owns the property. 

Not recording a deed can cause problems for the grantee. They may be unable to obtain a mortgage, insure the property, or sell it. Even more problematic, an unrecorded deed may make it possible for the grantor to sell the property to a buyer and subsequently sell the same property to a different buyer. This could result in the property being sold out from under the original buyer who failed to record the deed. 

Whether this last scenario is legally permissible depends on state laws that determine which party prevails when there are conflicting ownership claims to a property. 

Title versus Deed

A deed is a document that confers property ownership rights associated with title to a property. Both the deed and title to the property transfer from the grantor to the grantee when real estate is conveyed. But a title and a deed are not the same thing. 

Title refers to a property owner’s legal rights, such as the right of possession, the right of control, and the right of disposition. Title is not a document—it is a legal right of ownership. 

The deed, on the other hand, is a physical document that transfers ownership of property from the grantor to a grantee. It contains a legal description of the property and the names of the grantor and grantee. To make a property transfer official, the grantor must sign the deed, and the deed must be delivered to and accepted by the grantee. At the time of the conveyance or purchase, the deed and the title transfer from the grantor to the grantee. 

If this sounds confusing, Quicken Loans provides a helpful metaphor: a property title is like a book title, while a deed is like a physical book. You can hold the book/deed in your hand, but property title and a book title are concepts—not tangible items.¹ 

Recording the Deed

The grantee is responsible for recording the property deed under state law. Deeds should be recorded in the appropriate government office as soon as possible after the property is purchased by or conveyed to a new owner. 

Recording a deed makes it a public document and provides de facto notice to third parties that the grantee owns the property. If the deed is not recorded, the party holding the deed may not be recognized under the law as the legal property owner to third parties, though the deed may be legally effective to transfer the property from the grantor to the grantee. 

If a deed is not recorded, it is virtually impossible for the public to know that a property transfer occurred, and the legal owner of the property could appear to be the prior owner rather than the new grantee. This could present numerous problems. For example, a lender could deny a mortgage application if a property deed is not recorded in the new owner’s name. 

Not filing a deed could also raise a bigger issue. In the absence of a public record of the deed, the grantor could transfer the property a second time to a different grantee. A subsequent buyer who did not have notice of the prior transfer may have a stronger ownership claim than the person who holds the title but did not record the deed. 

Bona Fide Purchasers and Conflicting Property Claims

Arguably the strongest argument for recording a property deed is that, in most states, it eliminates the possibility of a subsequent sale of the same property to a bona fide purchaser. 

A bona fide purchaser is a buyer who purchases a property for a reasonable amount with no reason to believe that it belongs to another person or is subject to another party’s claim. In the context of this article, a bona fide purchaser could emerge if the property’s owner conveys the same property to two or more buyers, and the first buyer failed to record their deed. 

Remember, if a buyer does not record their deed, they are not publicly recognized as the property owner. Therefore, if the first buyer does not record their deed and a second conveyance of the same property occurs, the second buyer could be declared the rightful property owner as long as they record their deed before the first buyer. 

Jurisdictions differ on how they deal with conflicting property claims. They can be divided into three different types:² 

• Notice jurisdictions allow a subsequent bona fide purchaser to prevail over an earlier buyer if the bona fide purchaser did not know about the previous transfer and the earlier buyer failed to record the deed. In a notice jurisdiction, recording a deed eliminates the risk of there being a subsequent bona fide purchaser, because all buyers have a responsibility to perform a title search that would reveal a previous property sale. If the deed has been recorded, any claim that a second purchaser was unaware of the initial sale would therefore be due to their own negligence, disqualifying them as a bona fide purchaser. 
• Race-notice jurisdictions allow a subsequent bona fide purchaser to prevail over the first purchaser only if the bona fide purchaser records their deed before the first purchaser. The purchaser who records their deed first is recognized as the legal property owner. Thus, it is a “race” between the two buyers to record their deed—but the subsequent bona fide purchaser is only allowed to compete in the race if they did not know about the earlier property transfer (i.e., they did not have notice). By the way, Indiana is a “race-notice” jurisdiction.
• Race jurisdictions do not consider whether a second purchaser had notice of the earlier purchase. That is, the second purchaser does not have to be a bona fide purchaser. It is a pure race between the two parties to record their deed first, even if the second purchaser knows that an earlier unrecorded conveyance has taken place. Race jurisdictions are uncommon. 

Know the Law of Deeds Where You Live or Purchase Property

As stated above, Indiana is a “race-notice” jurisdiction. But, our clients may be purchasing property outside of Indiana. The buyer’s or grantee’s title or escrow agent is typically responsible for filing the property deed at the local records office when a real estate purchase or conveyance closes. Therefore, it is advisable that all grantees use a title or escrow company. Grantees who do not record their deed themselves should request a copy of the recording page from their agent or local government office. 

An unrecorded deed can pose significant problems—including the problem of conflicting ownership claims—and it should be recorded as soon as possible. Earlier buyers that lose out to a subsequent buyer may be able to sue the seller and recover the purchase money. To discuss a deed or title issue, contact our office and schedule an appointment.

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Footnotes

1. Patrick Chism, Deed vs. Title, What’s The Difference?, Quicken Loans (Nov. 16, 2020), https://www.quickenloans.com/learn/deed-vs-title.
2. Notice and Race-Notice Jurisdictions, LawShelf, https://lawshelf.com/coursewarecontentview/notice-and-race-notice-jurisdictions (last visited Dec. 21, 2022).