By Melis­sa In­gle­field and Aniko Sookoo

Fail to plan, plan to fail. While es­tate plan­ning might seem com­plex and daunt­ing, with­out it, your prop­er­ty could end up be­ing caught in a le­gal tug-of-war, and you risk leav­ing your loved ones stuck in lim­bo. Ef­fec­tive es­tate plan­ning is in­tend­ed to en­sure an or­der­ly trans­fer of own­er­ship to in­tend­ed ben­e­fi­cia­ries, while mit­i­gat­ing the risk of de­lay and trans­fer costs.

Re­al es­tate is a com­mon es­tate as­set that de­mands care­ful plan­ning. Choos­ing the right own­er­ship struc­ture when ac­quir­ing prop­er­ty is key to achiev­ing the own­er’s es­tate plan­ning ob­jec­tives.

This ar­ti­cle ex­plores some of the most com­mon meth­ods by which prop­er­ty may be owned by an in­di­vid­ual, high­light­ing its ad­van­tages and dis­ad­van­tages from an es­tate plan­ning stand­point.

Sole own­er­ship

Sole own­er­ship is the sim­plest form of prop­er­ty own­er­ship, as it gives the own­er full con­trol dur­ing their life­time to man­age, sell, or oth­er­wise deal with the prop­er­ty. Up­on death, the own­er’s ti­tle to the prop­er­ty pass­es un­der a will (by which a per­son may iden­ti­fy per­sons or a class of per­sons who are in­tend­ed to in­her­it as­sets), or in the ab­sence of a will, un­der the laws of in­tes­ta­cy (which pri­or­i­tizes the sur­viv­ing spouse and chil­dren of the de­ceased).

While this op­tion is cost-ef­fec­tive and avoids un­nec­es­sary com­pli­ca­tions or ad­min­is­tra­tive bur­dens (oth­er than the pay­ment of out­go­ings), it has no­table lim­i­ta­tions.

The abil­i­ty of the own­er to re­arrange his/her own­er­ship of the prop­er­ty for es­tate plan­ning pur­pos­es is like­ly to be re­stric­tive due to the ex­po­sure to high trans­ac­tion costs (such as le­gal fees and stamp du­ty) which are payable on the trans­fer of re­al prop­er­ty. As such, an in­di­vid­ual own­ing prop­er­ty in his/her name is like­ly to re­sort to us­ing a will set­ting out his/her wish­es for the in­tend­ed trans­fer of prop­er­ty on the in­di­vid­ual’s death.

In such an in­stance, be­fore the in­tend­ed ben­e­fi­cia­ries can take own­er­ship of and deal with the prop­er­ty, the will must be pro­bat­ed, which can cause de­lay and in­cur le­gal costs. Once in­her­it­ed, ben­e­fi­cia­ries have com­plete free­dom to sell or dis­pose of the prop­er­ty, with no safe­guards to en­sure fair­ness or con­tin­ued fam­i­ly own­er­ship.

Al­though straight­for­ward and in­ex­pen­sive, sole own­er­ship of­fers lim­it­ed es­tate plan­ning flex­i­bil­i­ty.

Joint ten­an­cy

This form of prop­er­ty own­er­ship aris­es when land or prop­er­ty is con­veyed to two or more per­sons with­out any lan­guage in­di­cat­ing that they hold sep­a­rate shares. Each joint ten­ant is en­ti­tled to the en­tire in­ter­est in the prop­er­ty, and col­lec­tive­ly, they are con­sid­ered a sin­gle own­er. A defin­ing fea­ture of joint ten­an­cy is the right of sur­vivor­ship, which means that up­on the death of a joint ten­ant, their in­ter­est au­to­mat­i­cal­ly pass­es to the sur­viv­ing joint ten­ant(s), over­rid­ing any pro­vi­sions in a will. This au­to­mat­ic trans­fer cir­cum­vents the pro­bate process, mak­ing it quick, sim­ple and cost-ef­fec­tive, while en­abling sur­viv­ing joint ten­ants to use the prop­er­ty with­out in­ter­rup­tion.

How­ev­er, there are im­por­tant draw­backs to this since the right of sur­vivor­ship pre­vents joint ten­ants from de­vis­ing any in­ter­est/part of the prop­er­ty through a will, which may con­flict with their es­tate plan­ning goals by leav­ing in­tend­ed ben­e­fi­cia­ries with a re­duced in­her­i­tance. Un­less the joint ten­an­cy is sev­ered dur­ing a joint ten­ant’s life­time, the en­tire prop­er­ty pass­es to the last sur­viv­ing joint ten­ant, who then de­ter­mines its ul­ti­mate dis­tri­b­u­tion. Since joint ten­ants are re­gard­ed as a sin­gle own­er, any deal­ings with the prop­er­ty such as mort­gag­ing, sell­ing, or leas­ing re­quire con­sent from all the joint ten­ants, which can lead to con­flict. Ad­di­tion­al­ly, the prop­er­ty can be sold to sat­is­fy one joint ten­ant’s debt, even if the oth­ers are not per­son­al­ly li­able.

To avoid some of these draw­backs, joint ten­ants can sev­er the joint ten­an­cy, con­vert­ing their in­ter­est in­to dis­tinct shares that can be trans­ferred by will or in­tes­ta­cy, there­by con­vert­ing the joint ten­an­cy in­to a ten­an­cy in com­mon.

Ten­an­cy in com­mon

Un­der this arrange­ment, each co-own­er holds spe­cif­ic, but un­di­vid­ed shares in the prop­er­ty, which means that the prop­er­ty is not phys­i­cal­ly par­ti­tioned. Un­like joint ten­an­cy, there is no right of sur­vivor­ship – a ten­ant in com­mon’s share does not au­to­mat­i­cal­ly pass to the oth­er co-own­ers up­on death. In­stead, it is dis­trib­uted ac­cord­ing to the terms of their will or un­der the rules of in­tes­ta­cy. This gives each co-own­er full con­trol over what hap­pens to their share in the prop­er­ty af­ter their death. A ten­ant in com­mon al­so has the free­dom to sell, mort­gage, gift or dis­pose of their in­ter­est in the prop­er­ty with­out need­ing the con­sent from the oth­er co-own­ers.

Al­though co-own­ers have more flex­i­bil­i­ty com­pared to joint ten­an­cy, there are lim­i­ta­tions. Since the de­ceased’s share is passed based on their will or up­on in­tes­ta­cy, the pro­bate process must be car­ried out, which can be lengthy and cost­ly. Ad­di­tion­al­ly, be­cause each co-own­er holds a dis­tinct share in the prop­er­ty, it can be sold or trans­ferred to a third par­ty. This has the po­ten­tial to lead to a con­flict since the prop­er­ty is not phys­i­cal­ly di­vid­ed and a third par­ty ac­quir­ing the in­ter­est may gain equal rights to oc­cu­py it. More­over, if one co-own­er owes a debt, the en­tire prop­er­ty can be sold to sat­is­fy that oblig­a­tion, even if the oth­er co-own­ers are not re­spon­si­ble.

Ten­an­cy in com­mon of­fers more in­de­pen­dence than joint ten­an­cy by en­abling each own­er to de­ter­mine the suc­ces­sion of his/her share up­on the own­er’s death. How­ev­er, cer­tain mat­ters (such as the use, mort­gage, oc­cu­pa­tion and sale of the prop­er­ty) will re­quire co­op­er­a­tion or agree­ment among co-own­ers.

Lim­it­ed li­a­bil­i­ty com­pa­ny

Uti­liz­ing a lim­it­ed li­a­bil­i­ty com­pa­ny for prop­er­ty own­er­ship of­fers a high­er lev­el of con­trol and pro­tec­tion, as it is rec­og­nized as a sep­a­rate le­gal en­ti­ty, in­de­pen­dent from its di­rec­tors, share­hold­ers, and mem­bers. This means that the com­pa­ny it­self is ac­count­able for its debts and oblig­a­tions, rather than the in­di­vid­u­als in­volved. There­fore, the com­pa­ny can own prop­er­ty and oth­er as­sets, en­ter in­to con­tracts, and man­age its af­fairs in­de­pen­dent­ly, there­by ringfenc­ing the prop­er­ty from the oth­er as­sets and li­a­bil­i­ties of the share­hold­ers and fa­cil­i­tat­ing un­in­ter­rupt­ed own­er­ship and con­trol of the prop­er­ty be­yond the lifes­pan of in­di­vid­ual share­hold­ers.

From an es­tate plan­ning per­spec­tive, hold­ing prop­er­ty through a com­pa­ny can cir­cum­vent the com­plex­i­ties and de­lays of­ten linked with the pro­bate process, since the prop­er­ty re­mains in the com­pa­ny it­self. Al­though the share(s) held in the prop­er­ty is dis­trib­utable by a will or up­on in­tes­ta­cy, when a share­hold­er dies, the com­pa­ny con­tin­ues to ex­ist and op­er­ate smooth­ly, avoid­ing any dis­rup­tion in own­er­ship or con­trol.

Fur­ther­more, pro­tec­tive pro­vi­sions which are cus­tom­ary in the ar­ti­cles of a com­pa­ny (such as pre-emp­tive rights and re­stric­tions on trans­fer) can be used to en­sure that the shares of the com­pa­ny re­main with­in the in­tend­ed ben­e­fi­cia­ries (or class of ben­e­fi­cia­ries) by giv­ing ex­ist­ing share­hold­ers the first op­por­tu­ni­ty to pur­chase any shares of­fered for sale or seized due to debt, pre­vent­ing out­siders from ac­quir­ing any in­ter­ests.

A key ben­e­fit of own­er­ship of a prop­er­ty through a com­pa­ny is that re­ar­rang­ing the ul­ti­mate own­er­ship of the prop­er­ty could be achieved through the trans­fer of own­er­ship of shares in the com­pa­ny. The costs of such trans­ac­tions are mean­ing­ful­ly low­er than trans­ac­tion costs as­so­ci­at­ed with a trans­fer of re­al prop­er­ty.

Notwith­stand­ing these ben­e­fits, cer­tain lim­i­ta­tions must be ac­knowl­edged. Shares held in the com­pa­ny are per­son­al as­sets, and if a share­hold­er owes a debt, and oth­ers do not ex­er­cise their pre-emp­tive rights, cred­i­tors can claim those shares, which can im­pact con­trol where vot­ing rights are in­volved. Ad­di­tion­al­ly, the for­ma­tion and main­te­nance of a com­pa­ny en­tail reg­u­la­to­ry com­pli­ance, such as fil­ing an­nu­al re­turns, ben­e­fi­cial own­er­ship in­for­ma­tion, and keep­ing ac­cu­rate records – fail­ure to com­ply can lead to penal­ties or the com­pa­ny be­ing struck off. With­out clear gov­er­nance, dis­putes among the share­hold­ers over prop­er­ty man­age­ment and con­trol may arise.

There­fore, while the lim­it­ed li­a­bil­i­ty com­pa­ny struc­ture of­fers valu­able pro­tec­tions and fa­cil­i­tates con­ti­nu­ity for es­tate plan­ning, it ne­ces­si­tates com­pre­hen­sive plan­ning to mit­i­gate as­so­ci­at­ed risks and ad­min­is­tra­tive de­mands.

Trusts

While less com­mon, prop­er­ty can al­so be owned and trans­ferred through oth­er mech­a­nisms, in­clud­ing trusts. A trust in­volves a le­gal arrange­ment where a grantor (or set­t­lor) trans­fers prop­er­ty to a trustee, who man­ages it for the ben­e­fit of des­ig­nat­ed ben­e­fi­cia­ries. Trusts of­fer sig­nif­i­cant flex­i­bil­i­ty in es­tate plan­ning. They can spec­i­fy con­di­tions for when and how ben­e­fi­cia­ries re­ceive as­sets, pro­tect as­sets from cred­i­tors, and min­i­mize costs (if im­ple­ment­ed at the out­set of the prop­er­ty ac­qui­si­tion).

Trusts can be struc­tured as re­vo­ca­ble (change­able dur­ing the grantor’s life­time) or ir­rev­o­ca­ble (per­ma­nent). Prop­er­ty held in trust avoids pro­bate, en­sur­ing a smoother and of­ten quick­er trans­fer to ben­e­fi­cia­ries. The terms of the trust dic­tate man­age­ment and dis­tri­b­u­tion, al­low­ing for tai­lored con­trol. How­ev­er, es­tab­lish­ing and main­tain­ing a trust can in­volve le­gal and ad­min­is­tra­tive costs.

The pri­ma­ry draw­back of us­ing trusts in es­tate plan­ning lo­cal­ly is that the grantor will be re­quired to ap­point ei­ther one or more in­di­vid­u­als or a com­pa­ny to act as trustee. De­ter­min­ing who the trustee should be re­quires care­ful con­sid­er­a­tion and can be cost­ly in cir­cum­stances where the grantor elects to ap­point a li­censed in­sti­tu­tion to act as trustee.

Con­clu­sion

When plan­ning for the trans­fer of prop­er­ty, the choice of own­er­ship struc­ture has sig­nif­i­cant im­pli­ca­tions for con­trol, suc­ces­sion, cost and pro­tec­tion. Ul­ti­mate­ly, the best op­tion de­pends on the pur­chas­er’s goals – whether ease of trans­fer, as­set pro­tec­tion, con­trol, or sim­plic­i­ty. Gen­er­al­ly, a com­bi­na­tion of these fea­tures, tai­lored to the fam­i­ly’s needs, pro­vides the most ef­fec­tive es­tate plan­ning so­lu­tion. Seek­ing ear­ly ad­vice at the time that as­sets are be­ing pur­chased is ad­vis­able to mit­i­gate un­nec­es­sary costs payable to re­arrange own­er­ship to achieve these goals.

Melis­sa In­gle­field is a Part­ner and Aniko Sookoo is an As­so­ciate at M. Hamel-Smith & Co. They can be reached at mhs@trinidad­law.com. Dis­claimer: This col­umn con­tains gen­er­al in­for­ma­tion on le­gal top­ics and does not con­sti­tute le­gal ad­vice.