When Should You Consider Joint Tenancy?

Homeownership represents the unattainable ideal for many millennials and younger Americans today. Between record-high housing costs, inflation, and stagnating wages, the dream of owning a place you can call home might seem exceedingly distant. However, if that home could somehow be split between multiple parties, a distant dream can quickly become a realistic prospect. One way to make that dream a reality is through a joint tenancy.

A joint tenancy is one of many ways a property can be split between two or more people – and it is one of the more common and flexible options.

But as with anything else, there are repercussions and considerations at stake, and opting for a joint tenancy comes with its share of benefits and pitfalls, both now and even in death.

What is Joint Tenancy?

A joint tenancy is a legal property ownership arrangement between two or more parties. Through a joint tenancy, the property is split equally among each co-owner or tenant, with an exactly equal amount of obligations and rights.

This means that if you own a vacation home with your wife and two other couples and share it over the year in four-month segments, each of the six parties attached to the property has a one-sixth right to the property and holds one-sixth of the property’s value. Furthermore, every joint tenant has a one-sixth responsibility for the costs and upkeep of the property and must contribute accordingly. If they fail to do so, the remaining tenants must pick up the slack and assume responsibility.

A joint tenancy has many unique properties over other ownership arrangements. For one, the equal contribution and benefit of every tenant means that any given tenant has the right to unilaterally exit the agreement without requiring the consent of others. If a person pulls out of a joint tenancy agreement, the remaining parties obtain an equal share – in our previous example of six, the result would be five equal tenants.

Joint Tenancy and Death

The same goes for death. Should a joint tenant die, their share is split between the surviving tenants. This is important because it means that a joint tenant cannot pass their share onto a different loved one by default.

When you die as a joint tenant, your tenancy passes onto the other surviving tenants – it does not pass through to your estate, does not go through the probate process, and cannot be included in the will.

Anyone can create a joint tenancy together. You can be friends, business partners, acquaintances, lovers, spouses, or even a group of people. It’s important to remember that no matter how the property is financed, a joint tenancy means every single co-owner shares equal responsibility.

This also translates into equal profit – if you buy an investment property with five other people, each of you receives a sixth of the benefit of the sale. If you rent it out, each of you receives a sixth of the rental income. Each of you is responsible for a sixth of the maintenance costs, a sixth of the taxes, and so on.

Community Property

California is a community property state. This means that any property obtained in marriage is automatically co-owned by both spouses. In fact, this ownership structure is effectively a joint tenancy. If you buy a home with your inheritance while married, you and your spouse become joint tenants of that home, regardless of who paid for it. Furthermore, you both gain the right of survivorship – meaning if one of you dies, the other obtains full rights and responsibilities of ownership.

Tenancy in Common

While joint tenancy is one of the more common ways to co-own property, it is usually compared to a tenancy in common. A tenancy in common is a co-ownership of property with unequal shares but equal rights.

What this means is that if you co-own a house through a tenancy in common, you might own 40 percent of the house, while the other two co-owners own 30 percent respectively. Each of you shares equal rights as owner, meaning none of you can do anything without approval from the other two – such as rent the property out to a tenant, renovate it, or reshingle the roof.

Furthermore, a tenancy in common does not have a right of survivorship. This means that when a co-owner dies, their share passes into their estate, and becomes a part of their probate process. They can leave their share of the house to a loved one in their will – it does not automatically become split between the surviving two owners.

Joint Tenancy vs. Life Estate

A life estate is a unique arrangement where property ownership is transferred to someone else, while the original owner retains the right to use the property until they die.

For example, person A could bequeath their property to a grandchild through a life estate while remaining a life tenant of the property, so while the recipient grandchild is now the technical co-owner of the property (called the remainderman), the de facto caretaker and resident remains person A.

In this case, ownership rights are unequal. While both the remainderman and the life tenant own the property, the remainderman cannot kick the life tenant out, and the remainderman cannot move into nor use the property for themselves.

The purpose of a life estate is not to share property but to transfer it between generations while skipping wills and the probate process.

When Should You Consider it?

A joint tenancy is ideal when you want equal ownership rights and responsibilities between all co-owning parties and when your intended goal is to leave your share of the property to the remaining co-owners. Joint tenancies are often ideal for married or unmarried couples – among married couples, a joint tenancy is also known as a tenancy by entirety.

A joint tenancy is not ideal when you intend to bequeath your share of a property to someone else. Joint tenancies are not ideal in situations where the relationship between the co-owners is tenuous or strained. While all parties involved can unilaterally leave the agreement and forfeit their portion of the property to the remaining co-owners, a share cannot be sold nor encumbered without the joint consent of all parties.