How Should I Title My Personal Residence?

Often I have investors ask me what entity should hold their personal residences. Many want to use at least the land trust or Family Limited Partnership. But by using any of these, you could be losing tax and financial benefits. So, how do you protect it?

Your personal residence is protected by being mortgaged 100%. Don’t worry, I am not suggesting that you have loans out totaling the full value of your residence, but have a home equity line up to 90-100% of the value. If you get the line from a first tier lender, the mortgage document at the court house will typically not specify that it is an equity line. It will appear that that amount is a loan on the property. Of course, you don’t have to draw on the line if you don’t want or need to, but having it available will provide you financial comfort as well.

Why not move the personal residence into an entity? Well, there are three reasons:

1. In some counties you may be denied homestead exemption, increasing your property taxes. And even if you are successful for property tax purposes, there is no guarantee that a court will recognize your homestead to protect a portion or all of your home’s value against a judgment or in bankruptcy.
2. Section 121 of the tax code provides up to $250,000 of gain per individual for sale of their principal residence if they owned and lived there two out of the last five years. If held in a land trust, you may be able to convince the IRS that you indirectly owned it, why even raise the question. If it is in a limited partnership, corporation or LLC, the IRS has already said Section 121 is not available.
3. And lastly, you do not want to appear too sophisticated. By holding the property in anything other than your own name or your revocable living trust, you might hint to someone doing an asset search how you hold other property. One of the tenets of asset protection is to appear as a little guy, just another working stiff.

Should it be in both spouse’s names? If one spouse is in a high liability business, such as a doctor, contractor, etc., an advantage could be had by titling the house in the name of the less exposed spouse. If both spouses have low liability occupations, then the home can be in both names.

The bottom line is that you should title your personal residence in your own name, your spouse’s name, both names or a living trust to avoid the potential problems above. If in both names, should it be as tenants in common, joint tenants with right of survivorship, tenants by the entirety, or community property? It will depend on your own situation and the entity forms available in your state. We will discuss the different forms in another article.