What is Joint Tenancy?

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Definition:

A joint tenancy is when two or more people legally split ownership of a property, affording each of them the same rights and obligations to it.

🤔 Understanding joint tenancy

A joint tenancy is a type of legal arrangement that grants two or more people equal rights and obligations to a property. Joint tenancies allow either party in the arrangement to take ownership of the property if the other passes away, avoiding probate. Although joint tenancy is typically thought of in regards to real estate, it can apply to bank accounts, brokerage accounts, businesses, and personal property in the form of a joint tenancy with rights of survivorship (JTWROS). In the case of a JTWROS, it can grant all parties access to each other’s financial accounts without having to go through court proceedings.

Example

Let’s imagine a couple, Jill and Jan, that want to purchase their first home together. They both want to have ownership of the property, so they enter a joint tenancy. When they buy the house, they both sign the deed, granting each of them an equal stake in the property. If Jan passes away, Jill will automatically become the owner of the property, and vice versa.

Takeaway

Joint tenancy is kind of like a co-presidency . . .

Both people are in charge of the company. If one of them dies or leaves the company, the other one will automatically take over. Similarly, in a joint tenancy, both parties have an equal stake in a piece of property. If one dies, the other will get full ownership of the property.

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What is joint tenancy?

Joint tenancy is a legal arrangement that grants two or more people equal ownership of a property. It is most common among married couples, but parents and children, unmarried couples, domestic partners, and even groups of friends can enter a joint tenancy.

Typically, joint tenancy refers to co-ownership of real property, but it’s not limited to that. The concept of joint tenancy with rights of survival (JTWROS) encompasses a wider range of assets and property types, including bank accounts, brokerage accounts, businesses, and personal property.

Joint tenancy is commonly considered advantageous because it can avoid the lengthy probate process if one of the co-owners passes away.

Usually, people leave property to beneficiaries in their will. When they die, the will must be validated by a court in a process known as probate. This can take a long time — even longer if no beneficiary is specified.

Thanks to the right of survivorship, joint tenancy can bypass this process entirely, granting full ownership to the co-owner in the case of the other party’s death.

Along with avoiding probate, joint tenancy gives all co-owners equal rights and responsibilities with regard to the property in question.

How does joint tenancy work?

Joint tenancy operates in basically the same way across all asset classes. In most states, joint tenancy can be created simply by adding the words “joint tenants with the right of survivorship” or “JTWROS” after the names on the title document. For real estate, this typically occurs on the deed.

The specific laws regarding joint tenancy vary from state to state. In South Carolina, for example, documents must use the words “as joint tenants with rights of survivorship, and not as tenants in common.”

Once a joint tenancy is established, it operates the same way across all assets: Both tenants have the same rights, responsibilities, and access to the property. If one of the co-owners dies, the other receives undivided ownership of the property (assuming the property is split between only two joint tenants).

What rights to joint tenants have?

Joint tenants have equal rights and equal shares in the property. The specific rights will vary depending on what type of property they co-own and the laws in their state.

It’s important to note that because tenants have equal rights, these rights can’t be used in the same way they would be if there were a single owner. For example, if only one person owned a house, they could decide to sell it whenever they wanted. In a joint tenancy, however, both co-owners would need to consent to the sale. If one party doesn’t agree, the sale can’t go through.

In short, both owners have the same rights, but that doesn’t give them carte blanche to do whatever they want without their co-owners consent.

What is the difference between joint tenancy and tenancy in common?

Joint tenancy and tenancy in common are legal concepts with a lot of overlap. In both joint tenancies and tenancies in common, both co-owners have equal rights and interests in the property.

But tenancy-in-common owners may have different shares of ownership (i.e., one may hold a 60% interest while the other holds 40%.) Tenants in common may also sell their ownership to another party or leave it in their will to someone other than the other tenants.

Also, a joint tenancy grants the right of survivorship, but a tenancy in common does not. That means that if one co-owner in a tenancy in common dies, the property will still go through probate.

What happens when a joint tenant dies?

If a joint tenant dies, the co-owned property is automatically transferred to the surviving tenant (or tenants). They receive ownership of the property. This avoids the need to go through probate, which is the usual will-verification process that’s conducted when someone passes away.

If there are multiple co-owners for a single property, the deceased’s share of the property is divided equally among the surviving joint tenants.

It’s important to note that the property will always be passed to the co-owner, never to the deceased’s heirs.

Is joint tenancy inheritable?

Unlike typical ownership or title in a property, a co-owner’s stake in a property cannot be passed down to their heirs. When one co-owner dies, the surviving tenant — or tenants — receives full, uncontested ownership rights to the property.

While this can be a negative for some, this is the primary purpose of the right of survivorship: to guarantee a smooth, uncontested transition of ownership after death.

What are the pros and cons of joint tenancy?

Joint tenancy provides several benefits to the co-owners:

  • Grants the right of survivorship: If one of the owners in a joint tenancy passes away, the other immediately and automatically receives full ownership of the property.
  • Avoids the lengthy probate process: Typically, when someone dies, a court needs to look over their will to validate it and determine who will receive their estate. In the meantime, their property is held by the court and isn’t released to the inheritor until it’s finished this process, referred to as the probate process. If no beneficiary is designated in the will, or there is no will at all, the process can draw on even longer. Thanks to the right of survivorship, joint tenants can bypass this process entirely for any jointly owned property. Joint tenancy is beneficial for estate planning.
  • Equal rights: In a joint tenancy, both tenants have equal rights to the property. That means that both parties legally have an equal say in all decisions, can count the property as an asset, and in the case of real estate can build equity.
  • Shared responsibility: All tenants in a joint tenancy have equal responsibility for the property. For example, one co-owner of a property can’t stop making their mortgage payments without consequence.

But joint tenancy is not without its disadvantages:

  • Equal rights mean compromise: While equal rights are great when things are going well, if your relationship with the co-owner turns south or you disagree about specific issues, there can be trouble. All parties must consent to any major decisions concerning the property. Formerly married couples who get divorced, for example, can have difficulty agreeing who gets the house or whether to sell it.
  • Can’t make decisions on the joint owner’s behalf: The laws regarding equal consent extend even to situations in which one of the owners is incapable of making a decision — if they become severely disabled after an accident, for example. To avoid this, both tenants can sign a “Durable Power of Attorney” document, which will give them the right to make decisions if the other is incapable.
  • Shared responsibility means you’re on the hook: Although shared responsibilities can protect you, that only works if the co-owner cares about the repercussions. If they don’t, they can make bad decisions for which you’ll be equally responsible.
  • Can’t pass to inheritors: If one co-owner dies, the property is automatically passed to the surviving owner. This is usually a benefit of joint tenancy, but if one of the owners dies unexpectedly and was hoping to pass the property to their heirs, joint tenancy will prevent that.
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