Estate Planning In North Dakota

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Property Ownership

Every person needs to know how they own their property, such as individual or joint ownership, understand the alternative ways of owning property, and appreciate which form of ownership may best help them achieve their goals.

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Property ownership

Estate planning requires an understanding of property and property rights associated with its ownership. The form of property ownership has an important impact on the degree of control during life, as well as how property will be taxed and distributed after death.

Property can be categorized broadly as real or personal. Real property includes land, attached structures and mineral rights. Personal property includes both tangible and intangible property. Tangible personal property encompasses such things as household goods, automobiles, business or farm equipment and stored grain. Intangible personal property includes bank deposits, life insurance policies, stocks and bonds.

Property ownership has two major elements: degree of interest in (or control over) the property and the relationship between co-owners (when more than one person has a present interest in the property). Note that absolute ownership of property does not exist. In all civilizations, governments may reserve the right to levy taxes on property, to regulate ways in which it may be used and to appropriate private land for public use by the power of eminent domain.

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Fee simple absolute

The closest thing to absolute ownership is called “fee simple absolute.” With property held this way, the owner (or owners) generally has power to sell it, borrow against it, receive income from it, lease it and transfer it to others during life or at death.

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Life estates and remainder interests

A more limited form of property interest is a life estate. Holders of a life estate, or life tenants, share property interests with “remaindermen” (people designated to receive a transfer of the property after the death of the life tenant).

Life tenants manage and receive income from property during their lifetimes but cannot dispose of the property at death. Life tenants generally may not sell or mortgage the property without the permission of the remaindermen and are responsible for property taxes, mortgage payments and adequate property maintenance. Note that the terms and provisions of a life estate may vary, depending on the instrument creating it.

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Sole ownership

With sole ownership, only one name appears on the deed or title. All solely owned property becomes a part of the owner’s gross estate and, upon death, passes to named benefi ciaries under a will or to heirs according to North Dakota law (if no will exists).

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Co-ownership

Co-ownership of property occurs when two or more people hold legal title to the property. North Dakota has two types of co-ownership: tenancy in common and joint tenancy with right of survivorship.

Tenancy in common: This form of ownership exists when two or more people hold an undivided ownership of land or other property. Each of the multiple owners has a partial, undivided interest in the property. Each has the right to enter upon the whole land and to occupy and enjoy the whole. Each can sell or gift his or her respective undivided interests without the permission of the other owners. Each has the right to the profits from the tenancy in proportion to his or her ownership interests and each has an obligation to pay the expenses of the property in proportion to his or her ownership interest.

A tenancy in common in real estate is created by the words “to A and B.” For personal property, a transfer “to A or B” or “to A and/or B” also may denote tenancy in common. When a tenant in common dies, his or her undivided property share passes to the beneficiaries specified by will or, if no will exists, to heirs under state law. The property does not pass to the co-owner unless the co-owner is named as the beneficiary in the will or is considered an heir under state law. Only the portion of the property owned by the deceased tenant in common is included in the gross estate for federal and North Dakota estate tax purposes.

Joint tenancy: This form of ownership carries with it the right of survivorship. Note that under North Dakota law, transfers to two or more people create a tenancy in common, rather than a joint tenancy, unless a joint tenancy clearly was created. Therefore, a joint tenancy ownership is created by the words “to A and B as joint tenants with right of survivorship and not as tenants in common.” In this instance, two or more people own property together, again with undivided interests. Each owner can terminate co-ownership by selling or transferring his or her interest in the property. The right of survivorship controls the disposition of property at the death of one co-owner. Property owned in joint tenancy immediately passes to the surviving joint tenant(s). Wills or state intestate laws do not control property held in joint tenancy. Even if listed in a will, property held in joint tenancy with right of survivorship supersedes or bypasses instructions in a will.

Some people are tempted to use joint tenancy with right of survivorship as an alternative to a will. This form of co-ownership has some advantages. For example, it is a quick and convenient way to pass property to surviving joint tenants, it may provide quick access to funds or property for the surviving joint tenants, and it can save some of the delays and expense associated with probate. However, it also has several potential disadvantages.

Joint ownership gives another person equal control over jointly held property. For example, a joint owner could withdraw all the funds in a joint bank or savings account, without permission of the other joint tenant. Jointly held property may be subject to inclusion in marital property (for purposes of dividing property during a divorce, for example) or have a lien placed upon it because of a lawsuit settlement against one of the joint tenants.

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