Is Joint Tenancy Your Best Title Option?
Joint Tenancy vs. Tenants-in-Common Comparisons
Joint tenancy is such a popular option for first-time home buyers that it's often the default choice, made without any thought to the other options available. Some purchase contracts even contain a provision that this is how a buyer will hold title.
How Joint Tenancy Works
Joint tenancy can be held by two or more people. Each person owns an equal share. Any of them can pass their share to an heir upon death. Four things must exist for a joint tenancy to be created. They comprise what's referenced in legal circles as TTIP:
- Time: Each person must receive or obtain title to the property at the same time.
- Title: The deed needs to reflect the name of each person on the same document.
- Interest: Each person owns an equal portion of ownership.
- Possession: Each person possesses the same right to occupy the property.
If any of those four requirements does not exist, it is possible the joint tenancy you may have believed was created could be challenged or contested in court.
Other Ways to Establish Joint Tenancy
To avoid a future headache, you might consider Joint Tenancy with the Right of Survivorship. This form of ownership provides special transfers that allow the title to pass to the remaining joint tenants after the death of one joint tenant. In this instance, an affidavit of death is typically recorded in the public records, along with a copy of the joint tenant's death certificate. The combination of those two items is enough to allow the remaining joint tenants to sell the home.
Death of a Joint Tenant
A possible consequence of Joint Tenancy with Right of Survivorship is if a joint tenant dies, that joint tenant cannot bequeath the property to an heir, other surviving relatives or to anybody else.
If a sister and brother hold title as Joint Tenants with Right of Survivorship and the sister marries, the sister's husband cannot receive title to the property upon her death, even if her brother does not live in the home.
If the sister and her husband live in the home, and the state is a community property state, you might ask, "Isn't the sister's husband entitled to some kind of interest, perhaps through co-mingled funds?" That's for lawyers to discuss, but the likelihood is the Joint Tenancy will allow the home to pass 100% to the brother, and, hopefully, the brother is kind enough to let his brother-in-law stay for a while.
If your situation sounds like this, look at Tenants in Common as another way to hold title. With Tenants in Common, there is only one shared element, and that is the right of possession. Tenants in common can hold equal or unequal shares, and interests can be acquired at different times.
Joint Tenancy Vs. Tenants in Common
One of the main differences between Joint Tenancy with Right of Survivorship and Tenants in Common is how the title is transferred after death, and the rights of heirs. If the brother, his sister and the sister's husband all held title as Tenants in Common, the brother could not ask his brother-in-law to leave the property, if the sister dies. The brother-in-law can't demand that the brother move out, either. They each have an equal right to possession. Also, the sister's interest would pass to her heir, which could be her husband if she had so specified.
Impact of Community Property
Under Community Property, generally, the title will be subject to probate or pass to an heir upon the death of one or more parties, depending on your state laws. However, Community Property can also include the Right of Survivorship, in which case, title will not transfer to heirs. Then there's the matter of taxation. We won't go there.
You can see why this issue of ways to hold title can become very complicated for a home buyer at the time of purchase. Some buyers don't want to deal with it because they are too excited about closing the home. But you should speak with a real estate lawyer and carefully consider each of the ways to hold title, and discuss the pros and cons of each before making your final choice.
At the time of writing, Elizabeth Weintraub, BRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.