Can my wife transfer our rental property without probate, since we treat it as a joint asset?

A reader recently raised an interesting topic. I frequently talk to clients who say that although their name is on an asset, it "really" belongs to someone else, or that there are side arrangements that affect the ownership of an asset. In this case, the reader was wondering whether the way they treat a house for tax purposes will impact ownership of it. Here are his note and my comments:

"The title of a rental property is in my name instead of jointly with  my wife as it was easier this way for getting a mortgage at the time of buying the property. Since then, we have been treating the property as a joint asset for tax purposes and split the rental income in our tax returns for 6 years. The question I have is that if I die, how could my wife transfer the title to her name without probate? I have a will leaving everything to my wife."

The short answer to your question is that she can't.

The longer answer, however, is probably more useful. The situation you've described is one in which the actual title to a property does not necessarily reflect who you believe "really" owns a property. You're not the only person who thinks that way, by any means. Parents add children to their titles when the property still "really" belongs to the parents. Parents' names are put on title to help a child buy a house, when the house "really" belongs to the child.

The fact that you and your wife have split the rental income will not affect your ownership of the property. Neither will the fact that you have made a will leaving the property to her. If her name is not on the property, she doesn't own it.

The issue is that a title to a property conveys fixed legal rights. This, of course, is done to protect ownership of land. One of the rights is to have full ownership even when someone else comes forward and says that the property is "really" theirs. Nobody can walk into a land titles registry and legally add their names to other people's property without going through the steps that ensure the owner of the land consents to the change of ownership.

If you should pass away, your wife will have to go through the probate process because the house is solely owned by you. An option you might consider is at some point transferring the house into joint names with her. If you passed away while the house was in both names, she would not have to go through probate. Please don't do this without thinking about the impact on your estate plan and your financial life in general, as it is usually a mistake to have too narrow a focus when dealing with legal questions and major assets.