September 25, 2012 at 5:56 pm | Real Estate
If you are buying a house or other residential property with a spouse or another person, you will need to decide whether you will purchase as tenants in common or as joint tenants. This is an important decision that may have significant implications for you and your heirs.
Joint Tenancy. If two (or more) parties own a property as joint tenants, each of the parties has the right of survivorship. This means that, if one of the parties dies while holding the property, the other joint tenant(s) will become the sole holder of the property. The property does not become part of the estate of the deceased owner and does not pass under the will of that person. If all but one of the joint tenants dies, the surviving joint tenant becomes the sole owner of the property and he or she may pass the property under his or her will without regard to any will or wishes of the former owner.
If the parties own a property as joint tenants, then they must have an equal share of the property. That is, if there are two owners, each has an undivided 50% interest in the property. In other words, each owns 50% of the whole property and not ownership of 50% of the property.
Tenants-in-common. If two parties own a property as tenants-in-common, each of the parties owns a separate interest in the property. Unlike the case with joint tenancy, the parties may hold different interests (for example, one owner may own 99% of the property and the other may own 1%). No owner has the right of survivorship and if one of the owners dies, his or her percentage interest in the whole property passes into his estate and is transferred as he or she directs in his or her will. In effect, each percentage interest is treated under law as a completely separate piece of property.
Use of the two types.
Purchasing a Home. A couple purchasing residential real estate, such as a house or cottage, will need to decide which form of tenancy to use. The advantage of joint tenancy is that, if one of the spouses dies, the property does not become part of the deceased person’s estate. Because of this, the probate process, as well as probate fees are avoided. If the house is a couple’s main asset, this may eliminate the need for probate altogether, which will have significant cost and time savings for their estate.
Potential Issues of Joint Tenancy. The potential issue for couples owning their family home as joint tenants is that the person to die first leaves all of the property to the surviving spouse and thereby loses control over how this asset will be passed on to the next generation. For couples in their first marriage where all of their children are shared by the couple, this may not be a concern and joint tenancy is chosen by many in this situation. For couples in their second marriage where the partners may have children from previous relationships, many people choose not to own property in joint tenancy, since each parent may want to ensure that their share in the property gets transferred to their own children. If the property is held under joint tenancy, the partner to die first loses the ability to transfer their interest in the property to their own children and instead, the property will ultimately be disposed of under their partner’s will.
This article is provided for information purposes and is not intended to replace legal advice. The use of these forms of tenancy can have a significant impact on you and your heirs. I recommend discussing this decision with your lawyer at the time you acquire property.