Estate Planning is one of the most powerful things you can do for your family and loved ones. But we know it can be complicated, too. There are a lot of moving pieces to a comprehensive, effective plan.
It’s important to know the ins and outs of the different types of tenancy so that you can feel confident in the plan you establish.
Types of Tenancy in Estate Planning
When we talk about tenancy, really we’re just talking about different forms of ownership. While there are many forms of tenancy, here we’ll look at the top five most common ones and discuss how they could affect your Estate Plan.
What is Tenancy in Common
Tenancy in Common is the title given when ownership rights to a property are shared. This could be physical property, a parcel of land, residential or commercial property.
If you own any type of property as Tenants in Common, it’s equally owned by each of you. However, it’s important to note, this does not mean that ownership is necessarily equal in terms of percentages. For example, you can own 70 percent and your partner could own 30. Yet despite the difference, you are still both owners and couldn’t act independently without one another. Additionally, when one Tenant in Common passes away, his or her share could be bequeathed to anyone they choose, rather than being automatically given to the surviving partner.
What is Joint Tenancy with Right of Survivorship
Joint Tenancy with Right of Survivorship exists when two or more people purchase a property. Each has equal rights to the property, and if one of them passes away, their share of ownership simply passes through to the surviving owner or owners. Joint Tenancy by itself generally deals with real estate and property, but by adding the Right of Survivorship to the title, it transforms the tenancy to a much more broad legal concept. It can reference businesses and even brokerage accounts.
What is Tenancy in Severalty
Tenancy in Severalty is when someone has an exclusive right to ownership not shared with anyone else. This could apply to people or a corporation as the owner. An easy way to think of this type of tenancy is to just think: Sole Ownership.
What is Tenancy by Entirety
Tenancy by Entirety (TBE) is similar to Joint Tenancy with Right of Survivorship, but while both types of ownership result from co-owners of a property, Tenancy by Entirety is a legal arrangement that only married couples can enter into. With this type of agreement, each partner owns an equal share.
What is Community Property with Right of Survivorship
Community Property with Right of Survivorship is very similar to the well-known Joint Tenants version of property ownership. It’s a relatively new type of joint tenancy concept, and it combines the security of Joint Tenancy with the addition of the tax benefits California allows through a Community Property system.
Titling property in California or another state that’s deemed a Community Property State means you and your partner can avoid probate. In fact, it protects surviving spouses in two ways. First, property could not be willed to someone else - it must go to a surviving spouse. But even beyond that, it can also offer tax benefits!
Understanding the differences between the types of tenancy in property ownership as they relate to your Estate Plan is simply a smart move. It allows you to take advantage of both the protection and the benefits each can offer, which means you can choose what works best for you and your loved ones, now and in the future.
The best way to ensure your Estate Plan will fully protect your family and legacy is by being educated on important terminology and understanding what type of property ownership applies to your situation. Trust & Will is always here to help, so see what we have to offer and reach out today!