6C Ownership Module Review

Transcription

1 6C Ownership Module Review Module Outline This module is divided into two units and a module quiz: Unit 1: Ownership Concepts Unit 2: Organizational Ownership Module Objectives By the end of this module, you will be able to: Discuss the different forms of ownership. Recognize various business entities. Page 1 of 10

2 Unit 1: Ownership Concepts Ownership Basics Generally speaking, ownership, or title to property, is created and conveyed in one of two ways: By deed, which is a document that transfers ownership of real property, as when someone sells a house to someone else. By devise, which is when real property is transferred because of a will. Ownership can be divided into two primary forms that describe how the property is held: Ownership in severalty and co-ownership. Ownership in Severalty Ownership in severalty: Is the simplest form of ownership. Is also known as tenancy in severalty. Is a sole form of ownership, meaning that only one person holds the title to that property. Could involve a single real person, or a single legal non-living entity, such as a corporation. Can be created and conveyed either through deed or devise. May be referred to as tenancy in severalty separate property when it involves property that is owned solely and independently of the owner s spouse. Co-Ownership Basics Co-ownership: Occurs when property is owned by more than one person. Is sometimes referred to as a concurrent ownership or concurrent estate. Is generally defined in the deed, which is evidence of their right to title to the land. The presence of several conditions, known as unities, defines the form of co-ownership: Unity of possession All co-owners hold the same undivided right to possess the whole property Unity of interest All co-owners hold equal ownership interests Unity of time All co-owners acquired their interests at the same time Unity of title All co-owners acquired their interests by the same deed or will Unity of person All co-owners are a single, indivisible legal unit, i.e., a married couple Note: To help you remember the five unities, think of PITTsburgh, Pa: Possession, Interest, Time, Title, and Person. Page 2 of 10

3 Co-Ownership: Tenancy in Common Two or more persons have an undivided right to possess the entire property Requires only unity of possession No right of survivorship Each owner has the right of disposal The only co-ownership that can be owned in unequal portions Can be created and conveyed either through deed or devise Could be created through an operation of law, e.g., when a married couple divorce Co-Ownership: Joint Tenancy Two or more persons have an undivided right to possess the entire property Each co-owner has an equal interest in the property Requires unities of possession, interest, time, and title Each owner has the right of disposal Can be created either through deed or devise Can be conveyed only through deed Always includes the right of survivorship When a joint tenant dies, that share of the property is split between the remaining coowners Parties of a joint tenancy have the right of partition in ending co-ownership; partition could also result from a court action Joint tenancy assumes the right of survivorship. In New York, however, the creation of joint tenancy with right of survivorship must be explicitly stated in the deed. Simply stating the form of ownership as joint tenants in the deed would be considered tenancy in common, with no right of survivorship. Co-Ownership: Tenancy by the Entirety Available only to husband and wife owners Spouses are considered a single, legal entity, therefore, unity of person Also requires unities of possession, interest, time, and title Assumed for husband and wife unless stated otherwise in the deed Can be created either through deed or devise Can be conveyed only through deed No right of disposal, since each spouse owns 100% Always includes the right of survivorship When a spouse dies, the property is owned in severalty by the surviving spouse Automatically terminated upon divorce or annulment (creating a tenancy in common) Page 3 of 10

4 Unit 2: Organizational Ownership Ownership by association is when business organizations, non-profit groups, and other entities own property in severalty or as alternate forms of co-ownership. Sole Proprietorship A business owned by a single individual (or a husband and wife for tax purposes) in severalty Owner is personally responsible for any business debts; personal assets could be attached in the event of default (except for property that is owned with a spouse as tenants by the entirety) Can operate under the sole proprietor s name or under an assumed or fictitious name, if registered with the state. Corporation A legal entity created and operated according to the laws of each state Regarded by the law as a legal person separate from the individual stockholders Property is owned in severalty as the legal person Shareholders are not personally liable for the corporation s debts Can be public (cities, counties, school districts, etc.), private for profit, or private nonprofit Partnerships A partnership: Is an association of two or more individuals as co-owners of a business, as specified in the partnership agreement. May take title to property in the name of the partnership as tenants in partnership. May also take title to property in the name of individual partners as tenants in common or as joint tenants. May be general partnerships or limited partnerships. Each member of a general partnership: Generally has an equal right to manage the business and share in the profits. Has an equal responsibility (jointly and individually) for the partnership s debts. In a limited partnership, one or more: General partners manage the business and have an equal responsibility (jointly and individually) for the partnership s debts. Limited partners (also known as silent partners) have no management authority, and their liability for partnership debts is limited to invested capital, not personal assets. Page 4 of 10

5 Limited Liability Company (LLC) A limited liability company: Is easier to set up than a corporation. Offers similar protection from liability to the owners, known as members. Provides flexibility to run the company like a partnership. Allows the opportunity to pass income tax burden through to the members. Trusts A trust allows the owner of property (trustor) to transfer ownership to someone else (trustee) in order for them to manage the property for a third party (beneficiary). A trustee may be an individual or a company. A trust may be established to reduce inheritance taxes or to direct an estate. A trustee s powers are limited by the terms outlined in the trust. A trust established for the trustor s lifetime is a living trust. A trust established by will or after the death of the trustor is a testamentary trust. Most states permit real estate to be held in trust, though the laws regarding trusts can be complex and can vary greatly from state to state. Land Trusts With a land trust: The only asset is real estate. The beneficiary actually directs control over the property. The beneficiary has the right to possess the property and earn income or proceeds from its sale. Other Types of Business Organizations Syndicate (or syndication): Joint participation of individuals, partnerships, corporations in a real estate investment Not a recognized legal entity Most property ownership forms possible (joint, tenants in common, partnership, corporation, etc.) Generally large, ongoing projects; often multiple projects Joint Venture: Arrangement in which two ore more individuals or companies pool resources in order to engage in one project or a series of projects Not an ongoing business concern Page 5 of 10

6 Real Estate Investment Trust (REIT): Real estate investment business with at least 100 investors organized as a trust One or more trustees manage property for the benefit of the beneficiaries Trust document vests title to the property in the trustees, who have only those powers expressly granted to them in the trust document Beneficiaries have no legal interest in the property, but do have power to enforce performance of the trust. Must earn 75% of income from real estate and distribute 95% to beneficiaries to avoid trust income tax Page 6 of 10

7 Terminology Review Adverse Possession Acquiring title to someone else s real property by possession of it. The possession must be open and notorious, hostile and adverse, exclusive, and continuous, for the number of years indicated by state law. Allodial System The system of land ownership under which anyone can own land. Beneficiary The person who receives the benefit from a will, trust, or insurance policy. Common Area Land and improvements in a condominium, planned unit development, or cooperative that all residents use and own as tenants in common, such as the parking lot, hallways, and recreational facilities; individual apartment units or homes are not included. Community Property In some states, property is owned jointly by a married couple for any property acquired during the marriage. Not recognized in New York. Concurrent Estates Ownership by two or more persons at the same time. All of the estates are concurrent estates except for estates in severalty. A co-owner can sell his interest without the other owner s consent, unless the property is held as tenants by entirety. Condominium A property developed for co-ownership, where each co-owner has a separate interest in an individual unit, and an undivided interest in the common areas of the property. Condop A property developed for co-ownership, where each co-owner has a separate interest in an individual unit, and an undivided interest in the common areas of the property. Cooperative A building owned by a corporation, where the residents are shareholders in the corporation; each shareholder receives a proprietary lease on an individual unit and the right to use the common areas. Co-Ownership Any form of ownership in which two or more people share title to a piece of property, holding undivided interests. Also called Co-Tenancy or Concurrent Ownership. Corporation An association organized according to strict regulations, in which individuals purchase ownership shares; regarded by the law as an artificial person, separate from the individual shareholders. Page 7 of 10

8 Devise Real property transferred in a will. Devisee A recipient of real property under a will. Feudal System The system of land ownership under which a king or queen owns all of the land and all other people are merely tenants. Freehold Estate A possessory interest in real property of uncertain duration; an ownership estate in real property; either a fee simple or life estate. Holder of freehold estate has the title. General Partnership A partner who has the authority to manage and contract for a general or limited partnership, and who is personally liable for the partnership s debts. Joint Tenancy A form of co-ownership in which the co-owners have equal undivided interests and the right of survivorship. Joint Venture Two or more individuals or companies joining together for one project or a series of related projects, but not as an ongoing business. Land Trust A trust in which real estate is the only asset. The beneficiary has the right to possess the property as well as to the income or proceeds from its sale. The trustee manages the real estate as directed by the beneficiary. Limited Liability Company A type of business organization that has the limited liability protection of a corporation and the tax advantages of a partnership. Limited Partnership A partner in a limited partnership who is primarily an investor and does not participate in the management of the business, and who is not personally liable for the partnership s debts. Ownership in Severalty Ownership by a single individual, as opposed to co-ownership. Partition, Judicial A court action to divide real property among its co-owners, so that each owns part of it in severalty, or (if it s not practical to physically divide the property) each gets a share of the sale proceeds. Partition, Voluntary When co-owners agree to terminate their co-ownership, dividing the property so each owns a piece of the property in severalty. Page 8 of 10

9 Planned Unit Development (PUD) A special type of subdivision that may combine nonresidential uses with residential uses, or otherwise depart from ordinary zoning and subdivision regulations; some PUDs have lot owners co-own recreational facilities or open spaces as tenants in common. Proprietary Lease Exclusive, longer term lease given to a person who lives in a cooperative and owns stock in the cooperative. Real Estate Investment Trust (REIT) A real estate investment business with at least 100 investors, organized as a trust. Right of Survivorship A characteristic of statutory survivorship tenancy, joint tenancy, and tenancy by the entireties; surviving co-tenants automatically acquire a deceased co-tenant s interest in the property. Sole Proprietorship A business owned and managed by one person (or for tax purposes, a husband and wife) who is personally liable for all business debts. It could be organized under a fictitious or assumed name. Syndicate An association of people or entities formed to operate an investment business. A syndicate is not a recognized legal entity; can be organized as a corporation, partnership, or trust. Also called Syndication. Tenancy by the Entireties A form of property co-ownership by husband and wife, in which each spouse has an undivided one-half interest without the other s consent. Tenancy in Common A form of co-ownership in which two or more persons each have an undivided interest in the entire property (unity of possession), but no right of survivorship. Timeshare An ownership interest giving the owner a right to possession of the property only for specific, limited periods. Trust A legal arrangement in which title to property (or funds) is vested in one or more trustees who manage the property (or invest the funds) on behalf of the trust s beneficiaries, in accordance with instructions set forth in the document establishing the trust. Trustee A person appointed to manage a trust on behalf of the beneficiaries; in a trust deed, an independent third party that holds the trust instrument. Trustor The property owner who grants a trust to a third party for the benefit of someone else; in a trust deed, the borrower. Page 9 of 10

10 Undivided Interest A co-tenant s interest, giving him the right to possession of the whole property, rather than a particular section of it. Unity of Interest Each co-owner having an equal interest (equal share of ownership) in a piece of property. Unity of Person Applies only to married couples; necessary for tenancy by entireties. Unity of Possession Each co-owner being equally entitled to possession of the entire property, because the ownership interests are undivided. See: Undivided Interest. Unity of Time When each co-owner acquired title at the same time. Unity of Title When each co-owner acquired title through the same instrument (deed, will, or court order). Page 10 of 10