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Property Ownership & Estate Planning: What You Need to Know

What happens to a house when the owner dies depends on how exactly the property was owned. Learn more about property ownership estate planning here.

Patrick Hicks

Patrick Hicks, @PatrickHicks

Head of Legal, Trust & Will

Estate plans are instrumental in distributing assets to beneficiaries and heirs. Of the assets included in an estate plan, however, none are typically more valuable than physical real estate. As a result, you’ll want to make sure you know what happens to your house when you pass away. If for, nothing else, how the property was owned will ultimately determine what happens to it when your property ownership estate plan is carried out. 

If you want to make sure your final wishes are carried out, you need to know what will happen to your own home when you pass away. This guide will tell you everything you need to know, including: 

What Happens to a House When the Owner Dies?

What happens to a house when the owner dies is entirely dependent on how the house was owned. For the most part, the home (or relative equity) will transfer to beneficiaries, heirs, or surviving owners. However, the means to the end will depend on the type of ownership. That said, in order to know what will happen to a home after the owner passes away, you must first know the types of property ownership. 

Types of Property Ownership

As the largest asset class in the world (and the most expensive thing most people will ever buy), real estate has become synonymous with several types of property ownership. At the very least, different types of ownership help democratize the American dream. With more ways to purchase real estate, more people will be able to buy a home (or at least part of a home). That said, some types of homeownership are more popular than others. Here are some of today’s most popular  types of property ownership:

  • Sole ownership

  • Joint ownership of survivorship

  • Tenants in common (or joint ownership without right of survivorship)

  • Title by contract

It needs to be noted, however, that what happens to a property after you pass away will depend on how it was owned. Let’s take a more in-depth look at what happens to a house when a true owner of home assets dies under the following circumstances.

1. Sole ownership

When someone with sole ownership of a home passes away, the asset will ultimately be transferred to any heirs or beneficiaries disclosed in the decedent’s Will. In the event there is no Will to distribute the assets in accordance with final wishes, the home will be subject to the state’s intestacy laws, which typically pass ownership to the next of kin (like a surviving spouse, children, or close relatives).

It should be noted, however, that the process of transferring real estate assets from one owner to another isn’t as simple as a standard transaction. Instead, transferring the sole ownership of a property to an heir or beneficiary requires the asset to go through the probate process. As a judicial process, probate will validate the Will (if there is one) in a court of law and assign an administrator (if the Will doesn’t name an executor) to carry out the decedent’s property ownership estate plan.

The probate process is lengthy and intensive, and primarily involves the court identifying the estate’s assets and debts. Once everything is identified, the court-appointed administrator or executor will proceed to pay off any remaining debt obligations. That’s an important distinction to make: the estate’s debts must be paid before the remaining assets can be distributed to beneficiaries. That said, if the property has a mortgage it will either need to be paid off or transferred to the new owner.    

2. Joint ownership of survivorship

When someone who owns a home via joint ownership or tenants in common (with the right of survivorship) passes away, the surviving owner automatically inherits the deceased owner’s equitable interest. The process that takes place to transfer the equity from one owner to the other is facilitated by a legal provision known as the “right of survivorship.”

The right of survivorship requires the surviving owner to provide proof of their counterpart’s death to the local municipality’s recorder office. If the appropriate documentation is provided, the recorder’s office will update the title of the subject property to reflect the new ownership. At the same time, the type of ownership will change from joint ownership to sole ownership. Consequently, the new owner will take over any financial obligations that still remain with the property.

3. Tenants in common (or joint ownership without right of survivorship)

As previously discussed, when someone in a joint ownership agreement (or joint tenancy) passes away and the right of survivorship is invoked, the equity in the home is automatically transferred to the surviving owner. That said, not all joint ownership agreements coincide with the right of survivorship. If an owner of a property with joint ownership without the right of survivorship dies, the equity in the home is not passed to the surviving owner. Instead, the equity is transferred to the deceased person’s estate, which will proceed to transfer the asset to heirs or beneficiaries via a Will, the state’s intestacy laws, or interspousal transfer

The equity in the home will be expected to go through the probate process in order to transfer to a new owner. However, it is possible to avoid the probate process if the equity in the home was placed in a Trust by the original owner. Beneficiaries who receive equity from a Trust may avoid the costly fees and lengthy proceedings associated with probate.

Regardless of whether the equity is transferred through probate or a Trust, the surviving owners will then be required to carry on the terms of joint ownership with the new owners.  The surviving owners will retain their share of the equity, and the new owners will take the place of the deceased. 

4. Title by contract

When someone who owns a home under a title by contract dies, the fate of the house will ultimately depend on the terms of the respective contract. If, for example, the contract stipulates ownership will transfer to the buyer upon the seller’s death, the buyer will become the new owner when the seller dies; it’s as simple as that. Unless otherwise stated in the contract, there’s no need for the property to go through the probate process or be subject to any other legal processes.

If, however, the contract doesn’t require the transfer of ownership upon the death of the seller, ownership will transfer to the seller’s estate. In that case,  the ownership of the property will transfer to the seller's heirs or beneficiaries according to their will or the state's intestacy laws. Not surprisingly, this will require the real estate asset to go through the probate process.

Update Your Property Ownership Estate Plan Today

When the owner of a house dies, the manner in which the asset was owned will ultimately decide what happens to it. More often than not, it will be transferred to heirs, beneficiaries, or surviving owners. However, the process the home undergoes to end up with a new owner will depend on how it was owned in the first place. 

If you want to make sure your real estate assets are left to the people you love the most, make sure you know what’s going to happen to your home when you pass away. Setting up a sound property ownership estate plan can go a long way in making sure your intentions are carried out. 

Here at Trust & Will, we’re here to help keep things simple. You can create a fully customizable, state-specific estate plan from the comfort of your own home in just 20 minutes. Take our free quiz to see where you should get started, or compare our other estate planning and settlement options today! 

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