There are many ways to take title to real property when it is co-owned with another individual. Joint tenancy is the legal term for holding an asset jointly by two or more people with rights of survivorship upon death. When holding property in joint tenancy, each party’s asset share passes to the surviving party or parties upon a joint tenant’s death. Joint tenancies are typically used by married couples or between parents and children. This form of title, however, is not typically used when business partners or friends co-own property. Assets commonly taken in the form as joint tenancy include real estate, vehicles, bank accounts, securities, and other valuable assets. Read on to learn more about the benefits of holding property in joint tenancy and possible downsides to be aware of.
The Benefits of Holding Property in Joint Tenancy
Taking title as joint tenants is easy. Married couples often take title as joint tenants by the entirety with the right of survivorship to avoid probate. By holding property in joint tenancy, the surviving tenant can easily transfer property to himself/herself after an owner dies. This allows the surviving tenant to avoid hefty probate costs and its prolonged process. Joint tenants are also entitled to a share of rents and profits that the property receives.
The Cons of Holding Property in Joint Tenancy
Though there are several benefits of holding property in joint tenancy, there are several downsides such as the following:
- The surviving tenant must find another method to transfer the property to his/her beneficiaries upon death.
- Each owner holds an undivided, 100% share of the asset.
- All parties will hold equal responsibility for the asset. This means that all parties share all liabilities equally. This can be a disadvantageous to a joint tenant who cannot afford to pay for any liabilities associated with the asset.
- Bank accounts held as joint tenants can be frozen to prevent the surviving tenant from completely liquidating the account. Courts do this in the event the deceased tenant has large sums of outstanding debts.
- A joint tenant may transfer their interest unilaterally and without the knowledge or consent of the co-tenant(s).
- May result in unintended estate planning consequences, inadvertently disinheriting children or others. Property held in joint tenancy passes to the surviving joint tenant(s) regardless of whom the decedent’s legal heirs are or what the deceased joint tenant’s Will or Trust directs.
How Joint Tenancy Avoids Probate
When a property owner dies, depending on property value, the estate may need to be probated. If there is a will, the court will decide whether the will is valid and binding. It will also determine what liabilities and assets the deceased may have. Once all the decedent’s debts are settled, any remaining assets will be distributed to designated beneficiaries. If a person dies without a will, the probate process may be more complex and drawn out.
Holding property in joint tenancy avoids probate completely. When title to property is in joint tenancy and one of the owners dies, ownership of the property can easily be transferred to the surviving joint tenant(s), thus avoiding probate. In order to transfer the asset, the surviving tenant or tenants will need to record a certified copy of the deceased tenant’s death certificate to remove their name from title. A document is recorded with an attached certified copy of the death certificate which provides notice that a co-owner has died. This officially removes the decedent as an owner of the real property.
Alternatives to Holding Property in Joint Tenancy
A common alternative to holding property in joint tenancy is tenancy-in-common. Holding property as tenants-in-common allows each owner to keep an identified percentage of ownership. A co-tenant can sell his/her share of the asset without the other tenant’s approval. Each co-tenant’s share in the property will pass to his/her heirs as indicated in his/her will. Also, the asset must be readily accessible to all co-tenants at all times.
Contact A People’s Choice for more information about holding property in joint tenancy. We can help you complete all the required paperwork to hold real or other property as joint tenants.