When you own property, it’s important to think about how the ownership is structured, and how you’ll legally be able to pass it on to those you love. In the case of marriage or any other type of joint ownership of property, a right of survivorship deed almost always comes into play. In this guide, we’ll explain why a right of survivorship deed is the key to joint property ownership, and why types of deeds fall into this category. We’ll also provide some insights and considerations to review for your estate planning purposes. Before we begin, let’s first explain what a right of survivorship is and why it’s important.
What is a Right of Survivorship?
Right of survivorship is a characteristic of jointly-owned property. If a piece of property has a right of survivorship designation, then this means that the surviving owner, or owners, automatically absorb the deceased owner’s share of the property.
Having such a designation is helpful because property ownership can get confusing when multiple players are involved. Does a deceased person get to pass on their share to a loved one? In this case, the answer is no. With the right of survivorship, the share is directly distributed amongst any surviving owners. We explain this concept in full in our simple guide to right of survivorship.
Note that not all properties have a right of survivorship. For starters, it only applies when there is more than one owner of a property. Second, the ownership structure of the property plays an important role in determining whether owners have a right of survivorship. A great place to start is by taking a look at the property deed.
What Types of Deeds Include a Right of Survivorship?
There are three types of deeds that include a right of survivorship. All three deeds are used in the case of a co-ownership structure. Each deed type indicates exactly how the right of survivorship works, and how the property interest will be transferred and divided. The three right of survivorship deeds are: joint tenancy, tenancy by the entirety, and community property. We explain each of these deed types in detail below.
1. Joint Tenancy: A joint tenancy deed is the most common type of co-ownership structure in which right of survivorship is included. In a joint tenancy arrangement, each owner has a right of survivorship with each of the other owners. This means that if one owner passes away, that owner’s property interest automatically passes equally to the surviving owners. When there is only one surviving owner left, they inherit full interest in the property. They are then free to do what they please, including selling the property or passing it to a beneficiary through a Will or Trust.
2. Tenancy by the Entirety: Married couples may have a tenancy by the entirety. In this type of co-ownership arrangement, neither spouse can take action on the property without their other spouse’s express consent. This means that they can’t sell the property, take out a mortgage, or bequeath it to a beneficiary unless their spouse is in agreement with the action in question and provides their written consent. If one spouse passes away, then the surviving spouse automatically absorbs the property in entirety. Note that tenancy by the entirety is recognized in most but not all states.
3. Community Property (with Right of Survivorship): There are currently 9 U.S. states that practice community property law. In these states, married spouses are treated as one economic unit. This means that one spouse can hold title to a community property with right of survivorship, even if they are not formally listed on the deed. If one spouse passes away, then the property passes automatically to the surviving spouse. The community property law states are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
What is a “Survivorship Deed?”
A survivorship deed alludes to one of the three types of deeds above that include the right of survivorship. Note that there technically is no such thing as a survivorship deed or right of survivorship deed. However, when someone uses this term, you can assume that they are referring to one of a few types of deeds that provide the right of survivorship in co-ownership arrangements. Otherwise, deeds are usually named after the type of warranty provided by the property title. To avoid confusion, you can always include the phrase “right of survivorship” as a secondary title to your property deed. (The primary would be the warranty of title.)
What Are Potential Problems with Right of Survivorship Deeds?
Right of survivorship deeds are great in the sense that they avoid probate, and property interest transfers automatically to any surviving co-owners. However, there are some possible drawbacks to consider:
No autonomy. As a co-owner of a property with right of survivorship, you cannot take any actions against the property without the permission of others. This means that you can’t sell the property, take out a mortgage, or even leave it to a loved one. Be careful when adding someone to the title.
No clear division of interest. The economic circumstances of one owner affects all of the other owners. For instance, let’s say you added someone to the property title. Later, that same person goes through bankruptcy. Their economic interest in the property could very well be treated as an asset of the bankruptcy estate and by creditors.
Do not avoid probate entirely. Although one of the main benefits of a right of survivorship is the ability to pass property interest outside of probate, you don’t get to avoid probate forever. When there is only one surviving owner left, the property becomes part of their estate in entirety. This means that when they pass away, the property must go through probate. They may avoid this by transferring the property into a Trust.
Tax consequences should be considered. Transferring property interest could lead to some tax consequences. For instance, you may be liable to pay gift tax should you choose to gift your interest in a property. A lifetime gift might forfeit stepped-up basis, which could lead to more capital gains. It’s always a wise idea to consult estate planning and tax professionals regarding your tax liabilities.
How to Create a Right of Survivorship
A right of survivorship is created by including special language in a deed. First and foremost, you’ll want to create a new deed when you’ve arranged a co-ownership agreement.
On this deed, you should state the names of each co-owner, and including language stating that each co-owner shares the property in joint tenancy, or as tenancy by the entirety. If you live in a community property state, you could simply acknowledge the property is owned as community property with the right of survivorship. Here, the most important piece is to make sure that the deed includes express language that the property is jointly owned with the right of survivorship.
Next, conduct some research and find out if your state has any specific requirements in regards to the right of survivorship. For instance, some states may require a separate document that lays out a survivorship agreement. A great way to find out is to contact your county clerk or recorder’s office and find out what requirements should be fulfilled to ensure that the property will automatically pass to surviving co-owners. It’s also a great opportunity to obtain any forms or templates, if available.
Finally, make sure to sign your deed and obtain the signatures of your co-owners, any witnesses if required, and then have the document notarized. Once you’ve submitted the deed and any other required documents and fees to your county office, your right of survivorship should be official!
Create Your Estate Plan Today
When you own any type of property or asset, it’s always a good idea to take a moment to think about how it will be passed. Note that without a specific Will, Trust, property deed, or any other legal documents, property will be passed by default using state law. The property will also by default go through probate, which can take months and can be very costly, thus eating into your estate.
Your real estate is no different. Should you want to make sure that your property passes automatically to your co-owner, such as your spouse, it is your responsibility to make sure that you have the right type of deed. In this case, it would be a deed that includes the right of survivorship. A right of survivorship deed is the only guarantee that your property will pass directly to your co-owner (often a loved one, such as your spouse) without delay or complication.
Once you’ve set up the proper deed with a right of survivorship, make sure to include it in your estate plan! If you need any help setting up, reviewing, or updating your estate plan, we’re here to help! Take our quiz to find out how to get started today.
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