Why Homeowners Should Beware of Tangled Titles

A tangled yellow cord against a dark blue background. — (Image credit: Getty Images)

Homeownership is one of the most common ways for building and passing on wealth. But ignoring the legal and practical aspects of homeownership can create a headache for your heirs and possibly even a financial liability.

"Tangled title" occurs when the legal title to a home doesn't accurately reflect the current ownership — often the result of inheritance issues. Thoughtful planning can help you avoid a tangled title and pass on your assets as you intended.

What is a tangled title?

When you purchase a home, you should receive a deed or title, a document that verifies you own it.

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The clerk for the county where your property is located keeps a record of the title, and many counties let you access these records online. If you took out a mortgage, the lender will often keep the official title document until the mortgage is fully paid off.

The county clerk keeps a record of the loan and lender's interest in your property along with a record of your ownership.

Tangled titles crop up when those records aren't up to date or changes aren't properly recorded. The result: The legal title no longer reflects current ownership, making it unclear or contested.

This is typically the result of inheritance issues, unresolved legal matters or a lack of proper documentation.

For many people, their home may be one of their biggest assets. But when homeownership is uncertain or disputed, it can create difficulties in maintaining, selling or refinancing the property.

What causes tangled titles

When someone passes away without an estate plan, and in some cases even with one in place, the home they leave behind may be inherited by more than one heir.

Having multiple owners of a single property can significantly increase the chances that its value is lost through partition sales, land speculation or tax default, even if those heirs take the proper steps to transfer the property title to their names.

It can also make it challenging for them to pass down the property to future generations.

If those heirs don't take the legal steps required to transfer the official property ownership to their names, it can make things even more complicated.

The title of the home would remain in the deceased person's name, which can create serious issues if it passes down more than one generation — for example, if grandchildren are living in a home that is legally owned by their late grandparent.

A lack of proper documentation and unresolved legal issues can also lead to tangled titles. This could be a property sale that isn't properly recorded or a dispute involving divorce or business partnerships.

How to avoid it: Planning is key

Creating an estate plan is one of the most effective ways you can avoid tangled titles. You should work with an attorney to clearly outline in your estate plan how you want your home to be distributed after your death, so your wishes are legally documented.

However, there's only so much you can do in your will if your beneficiaries don't execute the necessary administrative steps after your death.

If you'd like to have more control over what happens to your home after you pass — and reduce the administrative complexity for your heirs — another option to consider is leaving your home in a trust.

A trust is a legal entity where one or more people, the trustees, are responsible for managing the assets owned by the trust. Any number of people can be beneficiaries of the trust.

For example: One or two family members can be named trustees and placed in charge of the property, while all heirs could live in the home or receive a portion of the proceeds if it's ever sold.

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Any sale or transfer of property should be properly documented and recorded with the appropriate government office.

If you're dealing with property transactions, consider working with professionals (e.g., attorneys, real estate agents and title companies) to help you properly transfer the title and meet all of the legal requirements.

It's a good practice to periodically review your property records and confirm that the title is up to date, so you can address any concerns before they become problematic.

Your heirs have to do their jobs, too

It's crucial to have an estate plan. But it is equally crucial that your estate plan's fiduciary, whether that's an executor, administrator or trustee, records a deed to reflect the transfer of homeownership to your beneficiaries upon your passing.

And it's important for your heirs to know how crucial the recording is so they can make sure it happens as well.

Tangled titles have serious consequences, but they are avoidable.

Thoughtful planning is key. Working with the appropriate professionals to craft an estate plan, carefully documenting any transactions, ensuring your heirs are educated about the required documentation and regularly confirming your property records are accurate can help you fulfill your personal wishes in eventually passing down your home.

JPMorgan Chase & Co., its affiliates, and employees do not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transaction.

J.P. Morgan Wealth Management is a business of JPMorgan Chase & Co., which offers investment products and services through J.P. Morgan Securities LLC (JPMS), a registered broker-dealer and investment adviser, member FINRA and SIPC.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Adam leads J.P. Morgan Wealth Management's Wealth Planning and Advice team, which is responsible for wealth planning, thought leadership and strategic planning for individual clients. This national team of former practicing lawyers provides experience in estate and tax planning strategies, retirement planning, restricted and control stock and stock option management, business succession planning, pre- and post-transactional planning, concentrated position management and other personal planning strategies. The team provides internal training to the J.P. Morgan Wealth Management sales force on these topics and also creates content for distribution to the public.