There are many ways in which a person can hold title to a property. For example, an estate trustee dealing with the estate of a deceased person can have that person’s property transferred to them in the capacity of an estate trustee. Other times, an individual may hold a property as trustee for a beneficial owner. When more than one person owns a property together, the two most common forms of ownership are as joint tenants or as tenants in common.
The effects of co-owning a property as a joint tenant or as a tenant in common are very different from each other.
The main difference between a joint tenancy and a tenancy in common is the right of survivorship. If two individuals own a property as joint tenants and one of them dies, their interest will vest in the remaining owner who now owns the property completely. For this reason, joint tenancy is most often used by spouses acquiring property together so that eventually when one dies, the widow or widower is left with total control over the property.
A tenancy in common, on the other hand, does not give any right of survivorship to co-owners. An individual who owns a property as a tenant in common with one or more other individuals may devise their interest to anyone they choose on death. Furthermore, while living, a tenant in common has full rights to sell their interest in the property to whomsoever they may choose. For this reason, tenancy in common is often used when individuals purchase a property for business reasons or as an investment. As tenants in common they have comfort knowing that if they die, their family will receive the property rather than their business partners.
What’s more, a tenancy in common can be divided by percentage. An individual can own 10% of a property as a tenant in common while another owns 90%. This is particularly helpful for business partners investing in a property together, but can be an obstacle for spouses who maintain separate finances and purchase a home together with unequal contributions. If individuals choose to own a property as joint tenants, any mention of percentage of ownership may have the effect of severing the joint tenancy and creating a tenancy in common.
In the case of a tenancy in common, it is often difficult for an individual owner to sell only their share in a property. For this reason, when purchasing a property as a tenancy in common with other individuals it always helps to discuss how each individual tenant in common will contribute to the ongoing maintenance of the property and under what conditions they can sell their interest. It is always smart to consult an experienced real estate lawyer who can help you draft a Co-Tenancy Agreement which will govern the relationship between all individual tenants in common.
For the foregoing reasons, individuals must put a lot of thought in how they want to own their property. Furthermore, joint tenancies and tenancies in common are factors in estate planning as well.
When having their wills drafted, individuals wishing to leave a property to their children or any other group of individuals will need to seriously consider whether they want to devise the property to them as a joint tenancy or as tenancy in common. In fact, unless it is very clearly and explicitly stated that the testator wishes to leave the property as a joint tenancy, a tenancy in common will be created by default. There have been many cases in which a deceased person’s will was contested in court by parties over this reason specifically.
Others use joint tenancy as a means of avoiding including certain properties in a will, or for inter-generational estate planning. A parent who knows they want to leave their home to their child may add the child on title to the home as a joint tenant with the idea that when they die the home will pass to the child without having to pay estate taxes and without having to probate a will. This is trickier than it sounds and more often than not it doesn’t work (when taxes are concerned, it’s always too good to be true!). As always, there are ways to do things properly and those ways involve careful planning and consideration.
At Davidzon Burshtein LLP we are always happy to discuss matters of estate planning with our clients. There are many considerations when purchasing a property and this is just one of them. For this reason, it always makes sense to consult a lawyer who is experienced in real estate law and estates and tax law.