Ask About Co-Ownership - Part 3
Can you explain the differences between owning something in joint tenancy and in tenancy by the entirety? And what other ways of owning property are there, if any?
To conclude our short course on the various forms co-ownership can take, let's examine the old, familiar form known as Joint Tenancy.
Although joint tenancy is recognized in most states, it is generally not automatically created. To create a joint tenancy with right of survivorship, there usually must be express language in the conveying document stating something like:
"To A and B, as joint tenants with right of survivorship, not as tenants in common, tenants by the entirety, or community property."
On bank accounts or other types of investments co-owned by two people, you may see the abbreviation "JTWROS." That means that the bank or other institution is treating the ownership as a joint tenancy with right of survivorship. Without this, or similar language, the law assumes a tenancy in common is created.
Requirements. Not every deed that describes the co-owners as joint tenants is sufficient to create an actual joint tenancy. Certain conditions must be present or a tenancy in common is created by default.
- Traditionally, the joint tenants must receive their interest at the same time and through the same document (for example, a deed or will). However, with assets such as bank or investment accounts, you can usually change an existing ownership arrangement to a joint tenancy by simply notifying the institution that you want to change the names on the account. Be aware that the IRS may treat this as a taxable gift.
- Each joint tenant's interest must be equal in amount, (e.g. one-half interest for two joint tenants, one-third interest for three joint tenants, one-fourth interest for four joint tenants, etc.)
- Each joint tenant's interest must be equal in nature: e.g. outright ownership (fee simple) or life estate.
Here's an example: Kyle owned a farm. Thereafter, he married Jean and executed a deed to himself and Jean "as joint tenants." Under the old rules that still apply to real estate in many states, no joint tenancy was created because Kyle and Jean did not acquire title at the same time or by the same document. Kyle had owned the farm long before the making of the deed.
This is not to say that the couple cannot own the property in joint tenancy. Kyle can transfer property to his spouse in this somewhat roundabout way: he first transfers title to a third party (often an employee of the title company), who, following a pre-arranged agreement, will deed the property back to the couple as joint tenants. While this will create a valid joint tenancy, it probably will not be cheap. Depending on local rules and local real estate practices, some or all of these expenses may have to be incurred to make it work: real estate recording and transfer fees, title search and insurance fees, and attorneys' fees.
Ownership rights. Each joint tenant has an equal, undivided interest in the whole property. As with tenancy in common, each joint tenant may enter onto the common property, take possession of the whole, occupy and utilize every portion of the property at all times and in all circumstances. But, the rights to use and possession are not exclusive; the same rights are shared by each joint tenant. If income is derived from the property, each joint tenant is entitled to her proportionate share of the income.
Ownership responsibilities. Each joint tenant is also responsible for her proportionate share of expenses, taxes, and repairs. If the expenses are paid by one joint tenant, the other joint tenants must reimburse her for their share. The duty to reimburse may be enforced by one joint tenant by placing a lien against the interests of the other joint tenants. If one joint tenant pays for improvements to the property, the other joint tenants must reimburse only for the lesser of the cost of the improvements or the increase in value of the common property.
Survivorship rights. On the death of one of the joint tenants, the title that was held by the deceased person passes automatically to the surviving joint owners, not to the heirs of the deceased person or the relatives or persons named in his or her will. The right of survivorship continues until the sole survivor owns all of the property.
Severance. There is nothing sacred about a joint tenancy. It may be broken by any of the joint tenants. Certain actions will break it, even against the wishes of the other joint tenants, and convert it into a tenancy in common, so that the survivorship feature will not take effect.
- A transfer, or even a contract to transfer, by a joint tenant to a third party destroys a joint tenancy, at least with respect to the person who transfers the interest in the joint tenancy.
- An involuntary transfer of title will sever a joint tenancy. For example, a creditor of one of the joint tenants can reach only that tenant's share.
- In some states, a mortgage executed by one of the joint tenants severs the joint tenancy, but a mortgage executed by all of the joint tenants does not. If one joint tenant files a partition suit against the others, and the partition is granted, the joint tenancy is severed.
- Any agreement among the joints tenants showing an intention to treat the property as a tenancy in common will cause a severance.
Disadvantages. Joint ownership with the right of survivorship may seem convenient and easy, but it can have disadvantages.
- A family could be disinherited. For example, two brothers, Tim and Jake, own property as joint tenants with right of survivorship. Upon the death of one, the survivor automatically received the decedent's interest. If Tim dies, Jake receives Tim's interest. Tim's wife and children do not inherit, even if Tim left a will stating his property was to go to his wife and children.
- A parent could lose complete control over property owned jointly with children. For example, Mable, a widow, owns her home outright. Thinking that she would save probate costs upon her death, she placed the property in joint tenancy with her daughter, Patsy. Now, Mable wants to remarry, sell the home, and move to Florida. Patsy, not wanting her mother to remarry and move away, refuses to sell.
- Including only one child's name on a property deed could cause hard feelings and disinherit other children. For example, Mrs. Smith placed the title to her farm in joint tenancy with her son Robert. She told Robert to share the property with his sister, Ruth. After their mother died, Robert refused to share the property with Ruth. Legally, he is not required to do so.
If you have diligently studied this article as well as Part 1 and Part 2 of this series, you are now a font of knowledge about every aspect of co-ownership. But even if you're like the rest of us and just skimmed over the high spots of all this legalese, at least you're more aware of some of the benefits and pitfalls of these forms of co-ownership.