A common question with every closing involving two or more buyers is “How would you like the property to be vested?”. There are several factors to consider when choosing vesting, but, to begin, it’s important to know some key features and differences between each type. In North Carolina, there are 3 options:
The first type of vesting is Tenants in Common or “TIC”. This vesting is the default if: 1) the title holders are not married to each other or there is a married couple holding title with any other individual, entity, or married couple, and 2) there is no language creating different vesting as further described below. Title holders vested as TIC hold their shares individually which means their individual shares are freely alienable. In essence, alienability is the ability of each individual title holder to convey, exchange, or encumber, their share of the property. Theoretically, each title holder under TIC has the ability to sell their share to someone else or take out loans against their share in the property; however, in practice, it can be difficult to find someone to purchase one share of the property or find someone to loan money secured by only one share of a piece of property. Since the shares are held individually, if one title holder dies, that deceased holder’s share passes through their estate. Once a share passes through an estate, the heir(s) of the deceased title holder will hold the property as TIC with the surviving title holder(s).
The second type of vesting is Joint Tenants with Right of Survivorship or “JTWROS”. This vesting is created when: 1) the title holders are not married to each other or if there is a married couple holding title with any other individual, entity, or married couple, and 2) there is language creating JTWROS as further described in this paragraph. The statute related to this vesting is Article 6 of Chapter 41 of the North Carolina General Statutes. Among other things, that Article specifies what language is necessary to create a JTWROS. To create JTWROS the statute requires that the instrument (in most cases, the deed transferring title to new title holders) express an intent to create a JTWROS. The statute lists the following language as sufficient for creating JTWROS: “joint tenants with right of survivorship,” “joint tenants,” “joint tenancy,” “tenants in common with right of survivorship,” “joint with right of survivorship,” “with right of survivorship.”. If JTWROS is created then the title holders have shares as undivided interests which means each owner has equal rights to the property unless the instrument provides otherwise. The most notable different between TIC and JTWROS is the right of survivorship. If one title holder dies then the other title holders receive the deceased holder’s share. That means the share would not go through the deceased title holder’s estate. While holding a property as JTWROS there are situations within which all the title holders or one of the title holders can terminate the JTWROS amongst the original title holders. Those situations, as well as what type of vesting remains, depends on the manner in which the termination occurred and are all described in Article 6.
The third type of vesting is Tenancy by the Entirety or “TBE”. This type of vesting is available exclusively to married couples. The statute related to this vesting is Article 5 of Chapter 41 of the North Carolina General Statutes. Absent language in the instrument to the contrary, a TBE is created if property is conveyed to a married couple if both spouses are named in the instrument, even if they are not described as such in the instrument. As described in Article 5, a TBE may still be created if only one spouse is named on the instrument and the instrument identifies: a named man “and wife.”, a named woman “and husband.”, a named individual “and wife.”, a named individual “and husband.”, or a named individual “and spouse.”. With TBE, Article 5 dictates that each spouse has equal right to control, use, possession, and income from the property. Additionally, Article 5
states that, “Neither spouse may bargain, sell, lease, mortgage, transfer, convey, sign, pay out, or in any manner encumber any property held by them as tenants by the entirety without the written joinder of the other spouse.” except as otherwise permitted by law. Like JTWROS, TBE has the same survivorship right in that if one spouse dies the surviving spouse receives the deceased spouse’s interest; however, a big difference between JTWROS and TBE is the protections against creditors and/or judgments that TBE vesting offers. If a married couple is vested along with another individual, entity, or married couple, you can think of each married couple’s share as one interest. Meaning, the spouses will hold their share as TBE between each other, but as TIC between themselves as a married couple and any other individual, entity, or married couple unless the instrument specifies JTWROS.
There are several factors to consider when deciding on which vesting to choose. It is recommended that you consult with an attorney that works in Real Estate and/or Trusts and Estates to determine which type of vesting is the best fit for you and/or your family.
