When you purchase property, one of the most important decisions you will make is how the property should be titled. One common way to hold title is as joint tenants. In this guide, we will explore the concept of joint tenancy, its benefits and drawbacks, and how it affects the ownership of property.
What is Joint Tenancy?
Joint tenancy is a form of co-ownership that allows two or more individuals to hold title to a property together. Each joint tenant has an equal share in the property and the right of survivorship. The right of survivorship means that if one joint tenant dies, their share automatically passes to the remaining joint tenant(s).
Equal Share in the Property:
One of the key features of joint tenancy is that each joint tenant has an equal share in the property. This means that each joint tenant owns the same percentage of the property. For example, if there are two joint tenants, each would own 50% of the property.
Right of Survivorship:
The right of survivorship is another important feature of joint tenancy. This means that if one joint tenant dies, their share automatically passes to the remaining joint tenant(s). This can be a significant advantage for joint tenants, as it avoids the need for probate and ensures that the property remains in the hands of the surviving joint tenant(s).
Creation of Joint Tenancy:
Joint tenancy is created by specific language in the deed or other instrument that conveys the property. The language must clearly indicate that the property is being held in joint tenancy, and the names of all joint tenants must be included.
Benefits of Joint Tenancy
There are several benefits to holding title as joint tenants.
Right of Survivorship:
As mentioned earlier, the right of survivorship is a significant advantage of joint tenancy. It ensures that the property will pass automatically to the surviving joint tenant(s) without the need for probate. This can save time and money for the surviving joint tenant(s) and their heirs.
Avoidance of Probate:
Another benefit of joint tenancy is that it avoids the need for probate. When a joint tenant dies, their share of the property automatically passes to the remaining joint tenant(s) without the need for court intervention. This can be a significant advantage, particularly if the deceased joint tenant’s estate is complex or if there are disputes among heirs.
Simple Process of Transfer:
Transferring property held in joint tenancy is a simple process. If one joint tenant wants to sell their share of the property, they can do so without the consent of the other joint tenant(s). However, the new owner would become a tenant in common with the remaining joint tenant(s).
Drawbacks of Joint Tenancy
While joint tenancy has its benefits, there are also some drawbacks to consider.
Loss of Control:
One potential drawback of joint tenancy is the loss of control over the property. Each joint tenant has an equal say in how the property is managed, regardless of their contribution to it. This can lead to disagreements and conflicts between joint tenants.
Potential for Disputes:
Joint tenancy can also lead to disputes among joint tenants, particularly if they have different ideas about how the property should be managed. This can result in legal battles and potentially lead to the sale of the property.
Tax Implications:
There can be tax implications associated with holding property as joint tenants. When one joint tenant dies, their share of the property is not subject to probate but is included in their estate for tax purposes. This can result in significant estate tax liabilities for the surviving joint tenant(s).
Alternatives to Joint Tenancy
While joint tenancy is a popular way to hold title, it is not the only option available.
Tenants in Common:
Tenancy in common is another form of co-ownership that allows two or more individuals to hold title to a property together. Unlike joint tenancy, tenants in common do not have the right of survivorship. Each tenant in common owns a specific percentage of the property, which can be unequal.
Community Property:
Community property is a form of co-ownership that is recognized in some states. It applies only to married couples and means that each spouse owns an equal share of the property. Like joint tenancy, community property includes the right of survivorship.
Living Trusts:
A living trust is a legal document that establishes a trust during the lifetime of the grantor. The grantor transfers ownership of assets, including real estate, to the trust. The grantor maintains control over the assets during their lifetime and can specify how the assets should be distributed after their death.
Conclusion
Joint tenancy is a popular way to hold title to property, particularly for spouses or family members who want to ensure that the property passes smoothly to the surviving joint tenant(s). However, it is important to consider the potential drawbacks, such as loss of control and tax implications. Individuals should carefully weigh the benefits and drawbacks of joint tenancy before deciding whether it is the right choice for them.