What are joint tenants with right of survivorship (JTWROS)?
What happens to our property after we’re gone? It can seem like a grim subject to think about, but it’s important to have a plan so you can leave your home to the people you care about most when you pass away.
There are many ways to manage your affairs and transfer property to surviving partners and spouses. Family trusts, probate and life estates can all be helpful in this regard.
One approach to consider is joint tenancy. Joint tenants with right of survivorship (JTWROS) may have an easier time navigating the often difficult and emotional process of taking ownership of a jointly owned home after a loved one dies.
What is JTWROS & how does it work?
Joint tenants with right of survivorship is a legal status that determines how property is transferred after one homeowner dies. Ownership stake is jointly shared between the two individuals, whether they’re spouses, partners or even roommates. When one owner dies, ownership interest automatically passes to the other tenant.
Many people find JTWROS appealing because your partner, spouse or significant other doesn’t need to go through probate to claim ownership of your home. Under this arrangement, the property title and full ownership stake passes directly to the surviving tenant. As such, it’s one of the fastest ways to pass property to your loved ones.
Joint tenancy can apply to both personal homes and businesses owned by two parties. It can even cover checking accounts used by business partners or joint bank accounts owned by married couples. For the purposes of this article, though, we are focusing exclusively on the impact of JTWROS on homeownership.
Know your ownership rights under JTWROS
Although JTWROS is largely associated with the transfer of property after a co-tenant dies, it also impacts ownership while both parties are still alive. When you own a deed with a JTWROS designation, both you and your co-owner have equal say regarding what happens to the property. That means you can’t refinance your mortgage or take out a second home loan without the other person’s permission. Of course, that works both ways, so you don’t have to worry about a lien being placed on your property without your knowledge. Think of JTWROS as a joint partnership: You need everyone to be on board before you can make any major financial decisions about your home.
Another important consideration to think about is your mortgage. Lenders won’t distinguish between co-owners, and both parties are responsible for making their monthly mortgage payments, including paying property taxes. That may not be an issue for a married couple, but more complicated living arrangements could lead to potential problems. Let’s say the two parties in question are roommates who pay their share of the mortgage separately. If one person fails to make a payment, both will be held responsible.
Joint tenants with right of survivorship vs. tenants in common
The nice thing about JTWROS status is its simplicity. Your co-tenant avoids probate and gains full interest in the property without jumping through a bunch of legal hoops. That’s not always the case with other methods of property transfer.
JTWROS is most commonly compared with tenancy in common, which takes a different approach to property transfer after a co-owner or co-tenant dies. The biggest difference between the two is that tenants in common essentially can do whatever they want with their ownership interest. It doesn’t automatically pass to the other owner. Rather, interest of the property may be split between the surviving tenant and the deceased’s children. Let’s say that person had two kids, then the resulting ownership breakdown might look like this:
- Surviving tenant: 50%
- Deceased’s older child: 25%
- Deceased’s younger child: 25%
On the other hand, under a JTWROS agreement, the surviving tenant would retain full ownership.
Does JTWROS override a will?
We often think of wills being ironclad legal documents in which even the smallest detail needs to be followed to a T. Absent other mitigating factors, that’s often true. But when property owners agree to JTWROS terms, that legal status supersedes whatever conditions they put in their wills. If there’s a discrepancy between the two, the judge will decide whether to side with the will or the terms of the JTWROS.
What does JTWROS status mean for your taxes?
Depending on your specific situation, joint tenancy could impact your taxes — and not in a good way. Certain households may qualify for an estate tax exemption that's essentially double what they could normally obtain. However, JTWROS partners are unable to take advantage of those tax benefits, which would increase the amount of tax they potentially need to pay when their co-owner dies.* Speak with a qualified tax advisor to fully understand how these decisions could affect your taxes.
Now, most homeowners aren’t going to be terribly concerned about estate taxes since they only affect estates worth $11.7 million or more. But, gift taxes are certainly more likely to impact a wider swath of people. If you and your joint tenant are not spouses, the government may view the property transfer as a gift and, as such, assess a gift tax on the surviving owner.* Consider all the different scenarios in which two people use joint tenancy without being married:
- Romantic partners
- Parents and their children
- Close relatives
In any of those scenarios, the surviving tenant may be on the hook for gift taxes. It’s always good to speak with a qualified professional when trying to determine how estate planning could impact your finances.
JTWROS: Pros and cons
There’s a lot to like about joint tenancy relationships, but there are downsides to consider as well. Before you make any decisions, be sure to look at the pros and cons of JTWROS:
- Joint tenancy simplifies property transfer after death.
- The surviving owner avoids probate court.
- Joint tenancy prevents messy legal squabbles with people who might make a claim of ownership interest.
- You have final say on what happens with your property while you’re alive.
- The estate may be subject to additional taxes, depending on your circumstances.
- Joint tenancy supersedes the terms of your will, if you change your mind at a later time.
- Both owners are responsible if one fails to keep up with mortgage payments.
- Removing a joint tenant from a deed requires that person’s approval.
- The estate will still need to go through probate after both — or all — title property owners die.
Joint tenants with right of survivorship hold equal ownership stake in their shared property. When one dies, that ownership interest automatically passes to the other person. This can be a useful way to transfer property if you know for sure you want your spouse, partner or anyone else important in your life to take sole ownership of your home after you’re gone.
Still, joint tenancy isn’t perfectly suited for every living situation. You should also be aware that JTWROS agreements typically override any conflicting terms in your will. However you decide to proceed, take the time to consult an estate planning attorney or a real estate attorney who specializes in these matters. This is one decision you want to get right.
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