Some jointly held property must go through probate, but others don’t.
Jointly held property is property owned by two or more people, and there are several types. Whether the property needs to go through probate after the death of one owner depends on the type of joint ownership.
Probate is the procedure of settling the estate of a person who has died. It is usually time consuming and expensive—and it is often an unnecessary hassle--so many people make an estate plan to keep their property out of probate when they die. Some types of joint ownership can help with this, others can’t.
Three common forms of joint ownership are: tenancy in common, joint tenancy with right of survivorship and tenancy by the entirety.
Tenancy in Common—Requires Probate
A tenancy in common is a simple and flexible form of joint ownership, but it does require probate when an owner dies.
Under tenancy in common, two or more people can own property together, in equal or unequal shares. Each owner may sell is or her share independently and may also leave his or her share to a new owner at death.
Joint Tenancy—No Probate Required
Joint tenancy—sometimes called “joint tenancy with right of survivorship”—is a useful form of ownership for people who want the property to pass to the other owner without probate, but it is restrictive and can cause tax complications.
Under joint tenancy, two or more people own a property together in equal shares. Joint tenants cannot sell or pass on their interest in the property without breaking the joint tenancy. They can choose to sell together, but while they co-own the property, if one joint tenant dies, that person’s interest passes to the surviving owner or owners.
The last surviving joint tenant owns the whole property and can sell, mortgage, or pass on the property without restriction. However, when that last owner dies, the property will go through probate if that owner did not make avoid it—for example, by putting the property in a living trust or by using a transfer-on-death deed.
Joint tenancy is often used by family members, like spouses or parents and children, to avoid probate. This can work well in some situations when the co-owners are certain that they want the property to pass to the other owners after death.
When buying a property together, you can create the joint tenancy by taking the property as “joint tenants” or as “joint tenants with right of survivorship.” Some states have specific requirements, so get help from a lawyer, if you need it.
Use caution if you want to add a joint tenant to property you already own because:
- Adding joint tenant can affect gift taxes because it creates a gift to the added owner.
- In most states, a surviving spouse who was added to a title as a joint tenant won’t receive the benefit of the property’s “stepped up basis” after the original owner dies.
- Adding a joint tenant makes the new owner an equal and true owner of the property. Legally, he or she will have the same rights in and control over the property as you do. And if the new owner has money troubles, creditors may be able to reach his or her interest in the property.
If you want to create a joint tenancy, see a lawyer for help. If your goal is to avoid probate, you may be better off adding the property to a living trust or passing it to a new owner using a transfer-on-death deed.
Tenancy by the Entirety—No Probate Required
A tenancy by the entirety is a special form of joint ownership for spouses and domestic partners. Like joint tenancy, property owned in tenancy by the entirety passes to the surviving spouse without probate. However, under tenancy by the entirety, the spouses don’t have separate shares, they own together as one unit.
Marriage (or in some states, domestic partnership) is required for this form of ownership, so divorce or dissolution breaks the ownership into tenancy in common. During the marriage, neither spouse can change the ownership unilaterally, but the spouses can decide together to change the ownership type.
In some of the states that offer it, tenancy by the entirety may be created whenever spouses take title together, unless another form of ownership is named.
An Attorney Can Help
While some forms of joint ownership can help you avoid probate, all forms of joint ownership can have significant effects on your ownership rights, taxes, and control of the property. Before you decide to co-own property, get advice from a good real estate or estate planning attorney.
Questions for Your Attorney
- My mother is sick and can’t take care of her home, should I sign on as a joint tenant?
- My fiancé wants to add me to the deed to his house; should we wait until we are married?
- Our grandmother left my brothers and me the family cabin in equal shares. Should we take it as joint tenants?