When you hit an important milestone of buying a house with another person, you’re likely feeling all the excitement and getting ready to pop open the bubbly. Although you have every right to stop and celebrate the present moment, we also urge you to be thinking about your future. Namely, your right of survivorship. What are your rights of survivorship, and how does it affect your estate planning? We explain the details that every joint homeowner should be in the know about.
What is a Right of Survivorship?
Right of survivorship is an important aspect of co-owning property, and how property interest will be transferred if one of the owners should pass away. The right of survivorship typically applies to instances of joint tenancy and community property.
Joint tenancy is a legal term that describes a piece of real estate that is owned by two or more people who are on the same deed simultaneously. For instance, a married couple could buy a home together, or two best friends could share a down payment on a house. Learn more about joint tenancy here.
Let’s go over how the right of survivorship typically works, and then we’ll discuss how it could impact your estate.
How Does the Right of Survivorship Work?
The way right of survivorship works is that if one joint owner passes away, the surviving owner (or owners) will automatically receive the share of the property that was previously owned by the deceased person. This is only if the property was purchased by two or more owners, and the right of survivorship was expressly included in the property title.
The right of survivorship continues on until the last surviving owner. By this time, they will have absorbed all shares of the property’s interest. They can do whatever they’d like to do with the property, and can bequeath it to anyone in their Will and/or Trust.
The reason the right of survivorship was instituted was so that property ownership could be preserved by the owners of the property. It protects any remaining owners from having the property given to someone else outside of the group of owners’ without their express consent. That way, if one of the property owners passes away, the surviving owner or owners get to keep the property without any trial or tribulation.
For example, let’s say a married couple decides to buy a home together. They are both on the deed, and they have equal interest in the property with the right of survivorship. Years later, one of them passes away. The surviving spouse has peace of mind knowing that they will automatically have 100 percent interest in the property. Their late spouse’s share will not have passed to their child from a previous marriage, for instance.
Which States Have the Right of Survivorship?
In most cases, the right of survivorship is recognized in all states in the instance of joint tenancy. Each owner of the property must hold title to the property by being listed on the deed.
However, in the case of community property, each involved party has the right of survivorship, even if their name is not on the deed. The most common scenario of this is in a marriage; a surviving spouse has the right of survivorship in a community property state even if they were not included in the title of the property.
States that currently practice community property law include:
How Does This Impact Estate Taxes?
It’s important to understand the tax implications of any joint tenancy or community property scenario.
Luckily, through the right of survivorship, property interest passes automatically and directly from the deceased owner to the surviving owner or owners. Because of this, the property is not considered part of the decedent’s estate nor does it go through probate. Estate taxes will not be imposed on the surviving owners.
However, when the last surviving owner passes away, there is no one to pass the property to automatically. Because of this, the property is considered part of that last surviving owner’s estate. Their estate may be taxed at either the federal, state, or both levels if their estate exceeds the threshold for any applicable inheritance or estate taxes. Transferring the property to a Trust may be a good option to avoid having the property included as a part of an individual’s estate.
Also note that if you add anyone other than a spouse as a joint tenant of a property after its purchase, then it may be treated as a gift. Half of the value of the home is treated as a gift, and any amount exceeding the gift tax exemption may be taxed.
How Can Someone Terminate Their Right of Survivorship?
If the right of survivorship is not something that works for you, then luckily there are ways to terminate it. You have the option of severing the right of survivorship by recording a new deed. The new deed should show that your personal interest in the title is held as tenancy-in-common.
Tenancy-in-common is a scenario in which different owners of a property can be placed on different deeds, at different times. They may hold unequal shares of interest in a property. Each owner has the right to leave their individual share of a property to whomever they please through a Trust or Will. Once the right of survivorship is severed, then every owner of the property has the liability of choosing an heir to their individual share of the property.
If you would like to prevent the termination of the right of survivorship, then consider creating a joint tenancy agreement. This would be an agreement between all co-owners stating that no one can terminate the right of survivorship without everyone’s express written consent.
Challenging the Right of Survivorship
Note that challenging a right of survivorship deed is difficult. Contesting a Will is easier by comparison. However, one might be able to contest a right of survivorship if they can prove that the document had not been drafted property. For instance, perhaps the document does not clearly spell out the right of survivorship with joint tenancy.
When Should You Look for Alternatives to the Right of Survivorship?
Although the right of survivorship is a tool of convenience when there are multiple owners of a property, it may not always be the right fit.
For instance, let’s say that you co-own a home, but wish to have the right to leave your share of the property to your child. In this case, the right of survivorship would not help you achieve the outcome you desire.
If this applies to you, then the first option is to avoid a deed with the right of survivorship in the first place. Another option is to work with your co-owners to sever the right of survivorship and establish a new tenancy-in-common arrangement. That way, each co-owner would retain the right to transfer their property interest to their heirs upon their passing.
Create Your Estate Plan Today
The right of survivorship is a legal arrangement that most commonly applies to real property. When you establish joint tenancy with the right of survivorship, then your share of the property will be absorbed by your co-owner(s). We most often see this occurring between married couples who own real estate together. The major advantage of the right of survivorship is that it transfers property interest automatically and thus keeps it out of probate. On the other hand, the right of survivorship means that you cannot leave your share of the property to your heir, unless you are the last surviving owner. Those who wish to leave their interest in a property to anyone other than their co-owner should consider alternatives.
Regardless of what ownership arrangement you choose, it’s extremely important to integrate your property with your estate plan. For instance, if you co-own a house with your spouse, one cannot predict who will survive the other. In this case, you should proactively name a beneficiary to your property, even in the case of right of survivorship. If you were to pass away first, the right of survivorship will trump your estate plan. However, if you are the surviving owner, then the estate plan arrangements you’ve made will apply. Having your ducks in a row will give you peace of mind either way.
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