When property belongs to one person, it is generally easy to figure out who owns all the equity, and who decides where ownership over the property will be transferred in the future. But in many cases, property is not owned by a single person or entity. When two or more people own property, that property is usually held in joint tenancy, or by tenants-in-common.
Either way, different contracts and agreements determine how much of any given property each participating party owns and controls, and whether they can sell or transfer their share in any way. When a property is held in joint tenancy, for example, every person in that agreement owns an equal share of the property. That means when two people own a home in joint tenancy, each person owns 50 percent of the home’s equity.
Furthermore, most joint tenancy agreements include a right of survivorship. This dictates that when one of the tenants dies, their share is distributed among the remainder. So, when person A passes away, person B receives their share immediately. It does not go through probate, nor does it become part of person A’s estate (and therefore does not factor into their will).
This can have a lot of implications for estate planning – and it is often more complex than it might at first appear. A property can be held in joint tenancy, for example, but if someone buys a person’s share in a joint tenancy agreement, they are not beholden to that agreement (as they never signed it in the first place).
Furthermore, a sole survivor in a joint tenancy owns the property outright and has no one to give it to – thus it goes towards their estate. Such rules and exceptions are further complicated by other examples of joint ownership and property control, including community property and life tenancy. Let us navigate these terms together.
What Is Right of Survivorship?
Right of survivorship is an aspect of joint ownership that dictates that the share a decedent held in a property owned by multiple people is distributed among the surviving owners. If you own a property with two other people and pass away, your equal share of that property is evenly split between the remaining two owners. Instead of three thirds, the home’s equity is now divided into two halves.
Also known as “joint tenancy with right of survivorship”, this is a joint ownership agreement that bypasses probate and ensures that the surviving owner immediately receives the portion of the home you owned – provided that’s what you want. If, however, you own property in joint tenancy with someone else and wish to bequeath your portion of that property to a different person upon death, you will have to find a way to get out of the arrangement.
Right of survivorship bypasses probate, but it also bypasses a will. Right of survivorship can therefore a boon or a bane to your estate planning needs. If you are completely certain that you want your share to pass on to the surviving owner, then you have nothing to worry about.
But if you wanted to pass it onto someone else, you will have to get their consent to alter the agreement and arrange for the sale of your share of the property, or negotiate a tenancy-in-common agreement that lets you transfer the property through your will or other means. This is relatively simple to do, provided the other party consents to it and takes no issue with you altering the deed for the benefit of someone else, rather than letting them take your share after death.
Joint Tenancy, Tenancy in Common and Other Agreements
Joint ownership can be messy business. If a married couple acquires property in California, they own that property together as community property. This means both spouses own an equal half of the equity in that property, and if one of them dies, the other receives that half. However, if a prenuptial agreement predetermines some sort of specific division of property, then the property’s equity may not necessarily be split evenly between both spouses.
Furthermore, if a couple seeks a divorce, they can negotiate an even split in properties based on total equity, rather than splitting the equity of every asset – so one party can claim the family home, if the other party receives something with equal value, such as the family business and cheaper investment properties. Community property rules do not count for separate property, which usually means property owned before marriage.
Two or more people can own a single piece of property without being married first. While community property is generally a benefit of marriage, tenancy-in-common and joint tenancy its non-marriage equivalents. Where a joint tenancy has already been explained, tenancy-in-common is an alternative agreement where every party owns a determined percentage share of the property’s equity and can do with that share as they please.
This means a home can be split three ways into 20 percent, 20 percent, and 60 percent, or any other configuration based on what the parties agree on (usually based on how much money they put up to help buy the property). If you own 25 percent in an investment property held in tenancy-in-common, then you can do with that 25 percent as you please. This means putting it in your will, in a revocable trust, irrevocable trust, or even on the real estate market.
You can do any of these things without prior consent from the other owners. Any equity held in tenancy-in-common goes through probate unless other steps are taken to avoid probate. A life tenancy is a special form of ownership that involves multiple people, but only one person truly “owns” the property at a time. Life tenants usually sell their property to someone under the condition that they can continue to live on and use the property until they die.
In this agreement, the ownership is transferred to someone else, but the life tenant retains control over the property. They cannot sell or offer the property to anyone else. The co-owner, called the remainderman, can sell their interest – but the agreement remains unchanged. The life tenant cannot be kicked out of the property unless they agree to change the agreement, or when the agreement comes to its natural conclusion.
Navigating Ownership and Estate Planning Properly
Joint ownership can be difficult to navigate, depending on the circumstances and unique issues at play. It is always best to navigate your specific situation with a legal professional and find the best and most efficient way to pass your property on to whom you want to pass it to.
Sometimes, it’s as straightforward as writing a loved one into your will – and sometimes, doing so can catch you off-guard as the property passes to someone else entirely, because you weren’t aware of some of the details behind the ownership. In estate planning, it is important to be prepared.