Holding title to property as tenants in common typically doesn't avoid probate, at least not without a little help. Certain laws and rules determine who will inherit a decedent's ownership interest if your roommate or loved one has died and you owned a house together as tenants in common.
Why Probate Can Be Necessary
Probate is the legal process of transferring ownership of assets from a deceased individual's name into the names of beneficiaries. It also ensures that creditors can make claims for payment from the decedent's estate, and that final tax returns are filed, including an estate tax return if the estate is large enough.
All this can take some time and there's some expense involved, so many people plan their estates to try to avoid probate to the greatest extent possible. Unfortunately, holding property as tenants in common won't typically achieve this unless additional steps are taken.
The Definition of a Tenancy in Common
A tenancy in common is a form of ownership between two or more people. The tenants don't have to have equal ownership interests—one can own a 25% share of the property while the other holds 75% ownership. They're both entitled to the use of the entire house regardless.
This type of ownership is common among unmarried individuals when one contributes more financially to the property than the other. A tenant's percentage ownership in the house is typically commensurate with that person's contributions, so they have the right to transfer their interest to someone else during their lifetime or after death without the consent or permission of the other tenant or tenants.
Each tenant reserves the right to include their share of the property in their estate plan, leaving it to anyone they like when they die.
Tenants in Common vs. Joint Tenants
A joint tenancy is another common way to hold title to property, and this type of ownership does avoid probate because it carries rights of survivorship.
"Survivorship" means that when one tenant dies, that person's share of the home transfers directly and automatically to the surviving tenant. There's no need for a probate court to get involved because the transfer occurs by operation of law.
Joint tenants hold equal shares of the property. Ownership is 50/50 if there are two of them. Neither can sell or encumber their share without the other's cooperation and consent.
The survivorship rights inherent in the title would eradicate the bequest if a tenant should try to pass their share of the property to someone else in their estate plan.
When a Property Is Titled in the Decedent's Sole Name
This situation might seem impossible at first glance. A shared home ownership such as a tenancy in common can't be held in just one person's name—but the deceased's ownership interest can be.
If the decedent's share of the tenant-in-common property is titled in his name alone, that ownership interest in the home would pass through their probate estate in one of two ways.
- It would go to the beneficiaries named in the decedent's last will and testament the tenant left a valid will. That portion of the tenant-in-common property would pass to the beneficiaries named in the will to receive it.
- It would go to the decedent's heirs at law if the tenant did not leave a will. These are individuals who stand to inherit from a decedent according to state laws, called laws of intestacy, when no other estate-planning provisions have been made.
Spouses and children are usually first in line to inherit when a decedent doesn't leave a will or other estate plan.
The intestacy laws of the state where the decedent lived at the time of death would govern if the tenant-in-common property isn't real estate. Otherwise, the intestacy laws of the state where the real estate is located would govern, even if those laws are different from the laws of the state in which the decedent died.
The bottom line is that a survivor who holds title this way will end up with a new tenant—whoever inherited the other tenant's share. You could find yourself owning property with a complete stranger.
In a best-case scenario, the other tenant might have bequeathed their share to you. You would now own the entire property, just as you would in a joint tenancy with survivorship rights, but this transaction would be subject to probate.
If the Decedent Had a Revocable Living Trust
The decedent's portion of the house would pass to a beneficiary outside probate if they formed a revocable living trust and titled their portion of the property in the name of the trust. In this case, that tenant's share would go directly to the beneficiaries named in the trust documents without involvement of a court.
This isn't a function of the tenants-in-common deed, but rather a function of the living trust. Revocable living trusts avoid probate of all their assets.
A mortgage is a debt, and the probate process also addresses a decedent's debts. But the decedent's estate would not be responsible for paying off the mortgage if the loan is in joint names.
In this case, consumer law trumps probate law. Both tenants were contractually bound to pay the mortgage, so the entire contract obligation automatically shifts to the survivor by operation of law if only one of them survives.
The decedent's estate would be responsible for paying the mortgage or otherwise resolving the situation if the decedent held a mortgage in their sole name, however.
It could potentially involve a forced sale of the property by either the estate or by the lender if there aren't sufficient funds in the estate to settle the mortgage balance and the estate is responsible for paying it.
You obviously don't want to lose your home if your co-tenant dies, but you might not want to own property—or live with—whoever inherits the other tenant's share. You have a couple of options.
You might be able to reach an agreement with the new tenant to sell the property if you're not stuck on living there yourself. Everyone could take their rightful shares of the proceeds based on their ownership interests.
You might be able to buy out the new tenant's interest or find someone else who is willing to do so.
You could also file something called a "partition action" in court, asking a judge to force the sale of the property and pay each of you your respective ownership shares of the proceeds.