What is joint tenancy?
Buying a house can be complicated, but it pales in comparison to passing your property to loved ones after you’re gone. With wills, estates and probate to keep track of, it’s easy to feel overwhelmed and confused by the whole affair. And that’s before you toss in the implications of different living arrangements and types of property ownership.
Joint tenancy, in particular, is a common form of home ownership, especially between married couples, life partners and people in other long-term relationships. When buying a home, it’s good to think through whether joint tenancy or some other kind of ownership model makes sense for you.
What does joint tenancy mean for you as a homeowner, and what considerations should you take into account before entering this kind of legal agreement? Read on to find out.
What does joint tenancy mean in real estate?
Joint tenancy refers to a legal agreement in which two or more parties hold equal ownership stake in an asset. Joint tenancy can apply to a variety of assets — bank accounts, for instance — but in real estate, it involves an estate or a piece of property.
You may sometimes see the terms joint tenancy and joint tenants with right of survivorship (JTWROS) used interchangeably. In fact, some states do view the two legal concepts as one in the same. Other states take a more nuanced perspective on joint tenancy and JTWROS, however. At its most basic definition, joint tenancy doesn’t necessarily give participating parties any rights of survivorship at all.
So, why all the fuss about this form of property ownership? Joint tenancy clearly defines ownership interests so there’s no confusion about who is entitled to what — either while the co-tenants are still alive or after one or more have passed away. Many people who use joint tenancy do so specifically so their loved ones can avoid probate and any messy legal issues that might come up after they’re gone. These are always tricky — not to mention emotional — issues to navigate, so your best bet is to speak with financial advisors, estate planners and legal professionals who can help you make the right decision for your situation.
What happens to a joint tenancy when someone dies?
Distributing property after a joint tenant passes away is dependent on the terms of the agreement. There are two overarching types of joint tenancy contracts: tenancy in common and the aforementioned JTWROS. With JTWROS, the deceased’s ownership stake would pass directly to the other tenant. In most cases, the JTWROS agreement would supersede any conflicting terms contained in the deceased’s will, but a judge would make the final determination.
Joint tenancy works a bit differently. Under this arrangement, each tenant owns their own share of the property and can unilaterally decide what happens to it once they’re gone. That could include transferring their share to the other owner, but it could also potentially mean passing their ownership stake on to their heirs. It’s always a good idea to consult a real estate attorney or a legal representative who specializes in property ownership to fully understand the ramifications of a joint tenancy agreement.
What are the benefits of joint tenancy?
Whether you go the JTWROS route or want to establish a tenancy in common, there are some major upsides to consider. The benefits of joint tenancy include:
- You simplify property transfer after a joint tenant dies.
- You have equal say in all decisions related to the property, such as refinancing your mortgage or renting out your home.
- You share the financial burden of homeownership, including paying property taxes and homeowners insurance.
- As a surviving tenant, you’ll avoid probate court, assuming you have a JTWROS setup.
What are the dangers of joint tenancy?
There’s a flipside to just about every benefit we just listed, and they all come down to the inherent risk of joint property ownership. Think over these disadvantages before signing a joint tenancy agreement:
- JTWROS agreements may override the terms of your will if they contradict each other.
- You must get other joint tenants to agree to any changes to the property, whether that’s making alterations to your home, refinancing your mortgage or renting to a third party.
- You may be held responsible if your joint tenant falls behind on paying the mortgage, property taxes or homeowners insurance.
- Your heirs may lose the opportunity to make a legal claim to your estate if your joint tenancy agreement bypasses probate.
Joint tenancy vs. other types of property ownership
Joint tenancy is by no means the only way to handle property ownership between two or more people. Life estates, for instance, are popular legal vehicles that enable surviving spouses and relatives to stay in their home after the primary owner dies.
We’ve touched upon some of the nuances between joint tenancy, JTWROS and tenancy in common, but let’s review the most pertinent distinctions.
- Joint tenancy vs. JTWROS
- Joint tenancy vs. tenancy in common
- Joint tenancy vs. tenancy by entirety
Joint tenancy vs. JTWROS
As we noted earlier, the difference between these two legal concepts often comes down to semantics. Depending on the state you live in, both terms can refer to the same type of ownership agreement.
And that’s precisely what can lead to confusion for a lot of people, because at its core, joint tenancy doesn’t necessarily confer the right of survivorship on the other owner. It certainly can, but that’s not always the case. If you’re not sure precisely how joint tenancy is defined in your state, check with local real estate attorneys.
Joint tenancy vs. tenancy in common
Tenancy in common can sometimes be viewed as a subset of joint tenancy or a different ownership framework entirely. We’ve already discussed how property transfer may be handled differently with tenancy in common compared with JTWROS, with the former giving homeowners more flexibility in these matters.
One important distinction to keep in mind is the way ownership interest is divided up in both scenarios. With joint tenancy, each co-tenant usually holds an equal interest stake in the property. With two tenants, the split is often 50/50. With four tenants, it could be 25/25/25/25. Of course that doesn’t account for joint tenancy agreements without right of survivorship, in which case, a deceased owner’s share of the property could pass to multiple heirs. In that scenario, the breakdown could be 50% to the surviving owner, and the rest split evenly among the other tenant’s heirs.
Tenancy in common doesn’t always split shares of the property so evenly, though. One owner could hold a 75% interest stake while the other only has 25%. And that’s before you account for heirs or other parties who may claim a share of ownership in the property.
Joint tenancy vs. tenancy by entirety
We have yet to discuss tenancy by entirety, but it’s an important concept to cover when talking about joint tenancy. Although somewhat similar, tenancy by entirety differs from joint tenancy in a few key ways.
For one, tenancy by entirety only applies to married couples and, in some cases, civil unions and domestic partnerships recognized by the government. Joint tenancy, on the other hand, can include all sorts of personal relationships and legal statuses, including family members, significant others, friends and roommates.
Tenancy by entirety is also less flexible than joint tenancy. Joint tenants usually have some option to remove themselves from their arrangement, even if it’s not terribly easy to manage. In contrast, tenancy by entirety is pretty ironclad. Once you’re in this ownership agreement, it’s very difficult to break it.
Finally, tenancy by entirety is not available in every state in the country. And some states, like Illinois, only support this type of property ownership for primary residences.
Joint tenancy is a legal agreement between two or more people who share equal interest in a piece of property. Married couples and other homeowners often use joint tenancy as a way to simplify the transfer of property after one person dies. Estate planning is hard enough as it is, after all, and there’s no need to make things even more difficult for your loved ones. In many cases, joint tenants don’t have to go through probate court to claim their ownership interest, but that depends on the specific details of the situation at hand.
Deciding what will happen to your home after you’re gone is never easy, but it’s worth planning in advance. If you’re not sure of the best way to manage your estate, talk to a professional who can provide expert legal advice on your particular situation.