Joint Property Ownership Pitfalls and Solutions

joint property ownershipOur law firm has worked on a couple of cases lately involving joint property ownership; that is, property owned by a group of several individuals. Owning a piece of land or real estate with a group of individuals or family members can lead to many problems, a few of which we will discuss here.

What Happens to Real Estate When a Person Dies?

In Tennessee, real property typically passes outside of Probate in accordance with the publicly recorded property documents in the County where the property is located.  A person can also plan for the disposition of real property in a Will or Trust.  If you die owning real property in your sole name, though, it can cause significant problems for your Beneficiaries that can be avoided by proper planning.

In both cases I mentioned above, the group of individuals came into joint property ownership because of intestate succession (i.e., dying without a Will).  You may think that you do not need a Will because your property will pass to your heirs regardless.  However, there are many problems and burdens that your heirs will face if property passes to them through intestate succession.  Here’s what can happen if a landowner dies without a Will:

  • Land may pass to heirs who do not wish to be landowners.
  • Land may pass to heirs who do not know that they are now landowners (i.e. lost heirs).
  • Land may pass to heirs who are not prepared for the responsibility of owning real estate (i.e. paying real estate taxes, maintaining insurance, upkeep of the property)
  • If there is a mortgage, payments may be required very soon after the death of the original owner and before any inherited owner has a chance to determine how to address the new ownership – i.e. sell the property, allow it to be foreclosed upon, etc.
  • The title to the property will be unclear and extra effort will be required to determine all legal owners in a joint property ownership situation. It can be very difficult to locate heirs and to determine with certainty who all owns a piece of property, especially if some of the original heirs have died, or if the family isn’t in close contact or is spread across the country. A title search may be required, and title searches can be expensive.

Increased Costs for Inherited Owners

When a piece of property passes through intestate succession, when ownership is unclear, or when a piece of property is owned by a large group of individuals, there will be extra expense involved when the property is sold. As a general matter, the entire sales process will take longer than usual. Each separate legal owner must be found and consulted with.  Then, each owner must agree to all parts of the sale process (i.e. negotiating the price, negotiating and completing repairs, and signing all required paperwork).  It can be very difficult getting a group of family members or individuals to all cooperate and agree during the course of a real estate transaction.

Inherited owners who want to sell property can expect to have to do some additional work with the buyer’s title company such as filing probate documents, getting releases from TennCare, and dealing with potential creditors of the deceased person.  A title company may require proceeds to be escrowed for up to a year after the deceased person’s death.

Legal Issues of One Owner Can Affect Other Owners

Inherited and multiple owners can also come with their own personal problems.  A judgment lien or a bankruptcy filing of one inherited owner will immediately attach to the inherited property, which could cause delays and problems for any co-owners wishing to sell the property.

Ways to Avoid Common Problems of Joint Property Ownership

If you must own property with a group of individuals or family members, or if you desire to pass property to a group of people, there are ways you can accomplish joint property ownership which lessen the burden and expense involved. Speak with an Estate Planning Attorney or Property Lawyer about the best way to achieve your personal goals. For example, more effective “joint ownership” can be achieved in the following ways:

  1. Own as Joint Tenants with Rights of Survivorship. This type of ownership is common with married couples, but it can also be used with any individuals wishing to create this type of joint tenancy.  Upon the death of one joint tenant, the remaining tenant owns the property outright.  This results in protection from a debtor-tenant’s creditors because liens can only attach to the right of the debtor-tenant, which is nothing more than a “potential survivorship right.”  This protection ends if the non-debtor tenant dies and the debtor- tenant then owns the property outright.  One negative of this type of ownership is that the property will only pass to the other joint tenant, so the Estate of the first to die loses any equity to pass on to other individuals.  In addition, potential gift tax issues may arise since the Grantor is “gifting” rights to the property to the person they are creating a joint tenancy with.
  2. Own the Property in a Limited Liability Corporation.  Ask a business organization attorney about property ownership through an LLC. The rights of the members will depend on the structure of the LLC. Creating an LLC requires maintenance of paperwork to the State to keep the LLC active which will be required if the LLC wants to sell the property.
  3. Put the Property Into a Living Trust.  This is achieved by conveying the property to a Trustee on behalf of a Trust. (A Trust itself can’t own property; rather it must be an individual Trustee on behalf of the Trust.)  The property will then be maintained and distributed in accordance with the Trust Agreement.  A Living Trust allows the Grantor to make changes during his or her lifetime (therefore keeping control and autonomy) but also allows for the streamlining of management and an easy transition of the property upon the death of the original Grantor.  The successor Trustee can sell or manage the property outside of Probate, and depending on the Trust terms, without the input of or disruption to the Beneficiaries.

Beneficiary Deeds

Tennessee does not offer this, but some states allow the use of a Beneficiary Deed to clarify how a property is to pass upon the owner’s death. Essentially, a Beneficiary Deed lets a person name a beneficiary and only takes effect upon the death of the owner. Ask your Estate Planning Attorney about the availability of Beneficiary Deeds if you own property in multiple states.

Right to Partition

If you are tied up in joint property ownership, or if you own a piece of property with a group of individuals or family members and you want to end the relationship and go your separate way, you can. In Tennessee, you have the legal right to what is called “partition.” Speak with a civil litigation attorney about filing a partition lawsuit. In this kind of lawsuit, you ask the judge to partition the property, either “in kind” or “by sale.” To learn more about this kind of lawsuit, read our previous Blog Post about Partition Lawsuits.

Need Help with a Property Ownership Issue?

Have questions about joint property ownership or other real estate issues? Please call us at 901-372-5003 or send Wiseman Bray PLLC an email.

Wiseman Bray PLLC

8001 Centerview Parkway, Suite 103

Memphis, Tennessee 38018

(901) 372-5003 Office

www.WisemanBray.com

 

**Blog Post by:  Erin Shea and Carlisle Dale

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**Special thanks to Real Estate Closing Attorney Jennifer Sisson of Sisson and Sisson Law Firm for contributing her wisdom and insight to this Blog Post.

How to Dissolve a Tennessee LLC

dissolve tennessee llcNeed to dissolve your Tennessee LLC? The method for dissolving a business entity depends on the type of entity and its structure.  This post will focus on the termination of a Tennessee Limited Liability Company (LLC).  In addition, while LLCs can be dissolved both judicially and administratively, we will focus on dissolution by the person or persons associated with the LLC.

Disclaimer: This information is intended to be a general overview of the LLC termination process in Tennessee.  The termination process may be different depending on the LLC, its makeup, or a client’s specific circumstances. This information should not be used as a substitute for consulting an attorney about terminating your LLC.

 Statute on how to dissolve a Tennessee LLC

LLCs formed on or after January 1, 2006, are governed by the Tennessee Revised Limited Liability Company Act.  Tenn. Code Ann. 48-249-601  provides the various methods for dissolving a Tennessee LLC and provides that an LLC is dissolved upon the first of the following to occur:

  • Expiration of the period fixed in the Articles of Organization, if any:
  • The occurrence of an event specified in the LLC documents;
  • Action of the members in accordance with Tenn. Code Ann. § 48-249-603;
  • Action of the organizers under Tenn. Code Ann. § 48-249-602 if not contributions have been accepted by the LLC;
  • An order of the court under Tenn. Code Ann. § 48-249-616 or § 48-249-617, also known as judicial dissolution;
  • An action of the Secretary of State under Tenn. Code Ann. § 48-249-605; also known as administrative dissolution; or
  • If there are no LLC members and a notice of dissolution is filed within 90 days of the occurrence of the event terminating the interest of the last remaining member and the LLC documents specify that the termination of the interest of the last member dissolves the LLC.

The statute specifically provides that the “termination, dissociation, death, incapacity, withdrawal, retirement, resignation, expulsion, bankruptcy or dissolution of any member, or the occurrence of any other event that terminates the membership interest of any member, shall not cause the LLC to be dissolved.”  If any LLC is to be dissolved in any of these instances, it must be stated in the LLC documents.

What to Do Before Termination

Before terminating your entity with the Tennessee Secretary of State, the entity must file a Final Tax Return with the Tennessee Department of Revenue and obtain a Tax Clearance Letter to submit with its termination documents.

Submitting Termination Documents

If a Tennessee LLC is terminated by the organizers, Articles of Termination by the organizers must be filed with the Tennessee Secretary of State. If the LLC is terminated after a designated period, under the LLC documents, if there are no members left, or if by consent of the members, Notice of Dissolution must also be filed with the Secretary of State.    Be sure to have appropriate documentation filed with your LLC documents showing any action that was taken to effect this decision, if necessary.

What to Do After Termination

Once an entity is terminated with the State, the LLC must stop doing business and wind up its affairs.  To wind up the business, management must collect and pay all debts, sell assets, and distribute any remaining funds to the members of the LLC.

You Still Need to Consult a Business Lawyer

This information is only a general overview of the LLC termination process in Tennessee.  The process may be different depending on the LLC, its makeup or a client’s specific circumstances.  For this reason, it is important that you consult an attorney before taking steps to terminate your LLC.

If you need help terminating your LLC, we would be honored to assist you.  Please call us at 901-372-5003 or email us here.

 

Wyoming Close LLCs Protect Assets

Wyoming Close LLC Asset Protection Memphis TNA popular asset protection tool we use at Wiseman Bray PLLC is the Wyoming Close Limited Liability Company.  One or more people can establish and own this type of entity and may also manage the LLC.   

Anyone can establish a Wyoming Close LLC, even if you do not live in Wyoming or conduct your business there.

Protection from Lawsuits

Under current law, assets inside a Wyoming Close LLC are protected from “outside” lawsuits and creditors, such as those resulting from a car accident or malpractice action.  In a few states, like Wyoming, the sole remedy for a creditor of an LLC member against that member’s LLC interest is a “charging order.”  A charging order only allows the creditor access to the debtor’s LLC interest to the extent distributions are made to the member.

Estate and Gift Tax Benefits

Under current law, the value of a membership interest in a Wyoming Close LLC may be subject to valuation discounts for estate and gift tax purposes. We anticipate in the future that the IRS will institute regulations limiting tax benefits.

Separation of  “Hot” and “Cool” Assets 

A “hot” asset is something like a rental property.  A “cool” asset is something like a brokerage account. Separate LLCs should be formed to keep “hot” and “cool” assets separate.  “Cool” assets should be isolated from “hot” assets because any “inside” lawsuits, such as those resulting from accidents occurring on property inside the LLC, will subject “cool” assets to claims of creditors of the “hot” assets.

Is a Wyoming Close LLC right for you?

If you have questions about whether a Wyoming Close LLC might be right for you, or if you’re curious about other forms of asset protection and business organizations, please call us at 901-372-5003 or email us here. We will examine your personal situation and work to develop the asset protection strategy that is right for you.

Larry Bray

Larry Bray

Lindsay Jones

Lindsay Jones

Carlisle Dale

Carlisle Dale

Basic Asset Protection in Tennessee

asset protection lawyer, asset protection attorney, memphis How do you achieve asset protection? How do you best limit your liability and protect the assets and investments you have spent so much of your life building up?  While you cannot completely eliminate exposure to potential liability, you can achieve asset protection through the use of simple techniques, like buying the right kind of insurance, or through the use of more sophisticated tools like asset protection trusts.

General Layers of Asset Protection Planning

  1. Purchase Protective Insurance.  Examples: long-term care insurance, professional liability insurance, and umbrella personal liability coverage. Insurance is the simplest and most affordable way to protect your assets.  When our clients ask us if we think they have enough insurance, we always tell them that you can never be over insured.
  2. Utilize Statutory Law Protections.  Examples: ownership of real estate as tenants by the entireties, homestead exemptions, retirement plans, and life insurance or annuities.  Real property owned by a husband and wife as tenants by the entirety is exempt from the separate creditors of each spouse.  Additionally, other statutory protections provide that specific assets may be protected from creditors in certain circumstances.  For example, in Tennessee, life insurance passing to a surviving spouse or child passes free of the claims of a decedent’s creditors.  You should consult an attorney to find out which of your assets may be statutorily protected.
  3. Domestic Asset Protection Trusts.  Tennessee is only one of a handful of states that has a specific statute allowing an individual to create a self-settled asset protection trust.  This means that a person can create the trust, have control over certain aspects of the trust, and also be a beneficiary of a trust.  The rules governing these types of trusts are very specific.  These types of trusts are also available in Mississippi, Delaware, Alaska, and Nevada. If you are interested in learning more, click here.
  4. Domestic Entity Planning.  Example: Wyoming Close LLC.  An LLC, unlike a corporation, allows the members of the entity to separate their personal liability from their liability as members of the company.  The most enticing feature of an LLC is the fact that a creditor of the LLC cannot attach the personal assets of the LLC’s members.  We prefer using a Wyoming LLC because the laws in Wyoming are among the most favorable in terms of the protection an LLC provides.

Need an Asset Protection Attorney to Help Protect Your Assets?

We are experienced asset protection attorneys with offices in Memphis and Nashville. We can help develop a plan to best suit your individual needs. Call us today at 901-372-5003 or email us here. 

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By:      Carlisle Dale

Wiseman Bray PLLC

8001 Centerview Parkway, Suite 103

Memphis, Tennessee 38018

(901) 372-5003 Office

(901) 383-6599 Fax

www.WisemanBray.com