Buying a house is one of the most expensive decisions we'll make in our lives. Whether we buy a quaint forever home right out of the gate, or go through the process more than once, there are always financial considerations to make.
Some financial situations can lead us to less traditional solutions. For instance, did you know that you can purchase property, assets, and businesses with another person or group of people? For millennials ready for homeownership but that need help with the down payment, two best friends starting a new business, or a couple buying a vacation home with another couple, a Joint Tenancy arrangement may be the key to more attainable long-term goals.
Owning an asset or property by Joint Tenancy comes with its own set of rules, including how it may affect your Estate Plan. In this guide, we will summarize what you should know about Joint Tenancy before entering into this type of arrangement.
What is Joint Tenancy?
Joint Tenancy is a type of property ownership where two (or more) people purchase a piece of property, real estate, business, or asset. And keep in mind that joint tenancy is only one of the types of tenancy Each co-owner has an equal interest in the purchase, both the financial obligation and any benefits.
Any consenting adults can enter into a Joint Tenancy—married or unmarried couples, family members, friends, and business associates. With a Joint Tenancy, all co-owners must come into the purchase together, at the same time. This is unlike a Tenancy in Common, where someone can enter into ownership at any time. This type of Tenancy also allows each party to hold a different percentage of interest, whereas Joint Tenancy demands that each owner has an equal stake in the property.
Joint Tenancy commonly affects real estate. That can include your family home after marriage, an investment property, or vacation homes purchased with a partner or close friends. But property ownership isn't the only thing to create a Joint Tenancy for. It can also apply to the purchase of personal assets, businesses, and bank accounts.
Is Joint Tenancy Right for You?
How you make a substantial purchase is just as unique as the item you're purchasing. Ultimately, you need to decide what type of arrangement suits your needs best and what compromises you're willing to make.
Here are the pros and cons of what you can expect from a Joint Tenancy:
Pros of Joint Tenancy
Right of Survivorship: Joint Tenancy includes the Right of Survivorship. This means that if one party in a Joint Tenancy dies, their interest in the property or asset automatically transfers to the surviving co-owner(s).
A Joint Tenancy can ensure that your property goes to the person you intend in the event of your death. Typically when someone dies, the property left behind would go to the Beneficiaries of their Will. With a Joint Tenancy, the property instantly turns over to the other owners—no Will or Trust needed.
Split the costs: Joint Tenancy can make homeownership more affordable. If you're ready to buy a home, large asset, or business but are worried about your finances, Joint Tenancy allows you to split the costs.
If you're single, purchasing a home with a close friend, family member, or someone who shares your interests can make homeownership attainable when it would otherwise not be. Though joint homeownership can be tricky to navigate, many people find the tradeoff fair, especially if they live in an in-demand area with rising living costs.
Avoid Probate Court: Probate Court is the legal process of distributing someone's assets to their Beneficiaries. Because Joint Tenancy comes with a Right to Survivorship, it allows your heirs to avoid Probate Court.
Volatile family dynamics can also lead one to consider Joint Tenancy. You may have a suspicion that surviving members of your family would contest the validity of a Beneficiary in Probate Court. A Joint Tenancy arrangement may be the best option to ensure that who you want to inherit your stake in a property does. After all, why should your eldest son take over the business you've built when you have a business partner who will continue to operate it in your absence?
There is an exception to avoiding Probate Court in a Joint Tenancy. That is if all co-owners die at the same time. Even then, some suggest that Joint Tenancy only delays the Probate process. When either Joint Tenant passes away, the co-owner immediately becomes the sole owner of the property. But when that person dies, the property still must go through the Probate Court, thus only delaying the process.
Cons of Joint Tenancy
Change in marital status: A change in marital status can complicate a Joint Tenancy arrangement. After a divorce, some people may want to sell the family home or shared vacation property. In a Joint Tenancy, it may not be so easy.
No one in a Joint Tenancy can make unilateral decisions about shared property. To sell a piece of property or take out a loan against it, you need express permission and unanimous consent from any co-owners. If a Joint Tenant becomes permanently incapacitated, the other owner may need to obtain a Power of Attorney to keep control over jointly-held assets.
Missed Tax Breaks: A Joint Tenancy can end up being costly to an heir or Beneficiary. When someone inherits a piece of property through a Will or Trust, a Beneficiary can sell the property and collect the profit without paying income tax on it. With a Joint Tenancy, the surviving owner does not benefit from the same tax break if they choose to sell the co-owned property.
Family disputes: Joint Tenancy could potentially spawn disputes among family members. Children from blended families could be unintentionally disinherited as a result of Joint Tenancy. In these cases, a husband and wife may jointly own their family home. When the husband dies, the wife becomes the sole owner of the property. But if she had not updated her Will after getting married and inheriting your stepchildren, her property may only go to her children upon her death, not her stepchildren.
How Joint Tenancy Can Affect Your Estate Plan
A Joint Tenancy can make homeownership or business acquisition attainable when it wasn't before. But co-owning property can make future Estate Planning more challenging. The type of Tenancy you establish can mean your life's work going to someone who doesn't know the first thing about running the business you've built, or your home not going to the intended Beneficiaries.
Trust & Will makes planning for your future easy. Their Trust-Based Estate Plans are fully customizable, and there's always someone available to answer your questions—about Joint Tenancy and everything else relating to your Estate Plan. See what they have to offer today!