Whether you own a property as joint tenants or tenants in common can make a big difference as to what you own and how that plays out for estate planning. Joint tenants own an undivided interest in the real property whereas tenants in common own a specific percentage of the property. With joint tenancy, title to the property will flow to the surviving tenant without the need for a probate action. If the property is titled as tenants in common, a probate action is required to transfer the deceased owner’s share of the property to that decedent’s heirs. The property will be transferred according to the decedent’s will or the state’s intestacy laws if the deceased owner does not have a will.
One should not automatically assume that joint tenancy is the best option since it avoids probate. It is possible that the use of joint tenancy may trigger unintended consequences. For example, parents John and Jane transfer their house to their two children Bill and Mary at death. If Bill and Mary are joint tenants and Bill dies, Bill’s children (i.e., John’s and Jane’s grandchildren) will not inherit any ownership of the house. Instead, Mary will have 100% ownership interest in the house because she is the surviving joint tenant between Bill and Mary.
It is important to understand the ramifications of joint tenancy because John and Jane, as the original owners of the house, may not have intended that their grandchildren through Bill be cut out of eventual ownership of the home. If Bill and Mary had held the property as tenants in common, they would each have owned a specific percentage of the property, which could have been transferred to their respective children regardless of whether Bill or Mary died first.
Another joint tenancy situation where unintended consequences could arise is for a couple who is on their second marriage. For example, John and Jane get divorced and John then marries Sarah. John and Sarah purchase a property together and own it as joint tenants. If John dies first his interest in the property will now pass to Sarah, and when Sarah dies her heirs will inherit the property. John’s children from his first marriage, Bill and Mary, will not receive any share of the property, which may be inconsistent with what John ultimately wanted for his children.
How to take title to real property is something that needs to be considered from a real estate perspective as part of any estate planning process. The examples provided above serve as a good reminder for why it is important to make sure you fully understand the benefits and challenges of the different options that exist at the time you are acquiring or transferring property, including how each option could play out during your lifetime and upon your death. By having this in the forefront of your mind, it will help you to better develop an estate plan that fits your overall needs and desires and avoids unintended consequences.