Joint tenancy offers two or more people a convenient and affordable approach to purchasing property together, but with its own rule book.
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by Swara Ahluwalia
Swara has over six years of writing experience in the software, manufacturing, and small business segments. When she .
Updated on: August 8, 2024 · 12 min read
Skyrocketing mortgage and loan rates can make aspiring homeowners and entrepreneurs rethink their real estate plans. However, that doesn’t have to be your reality. If you're looking to purchase a real estate property or start a business with your partner, business affiliate, or friend and are worried about finances, a joint tenancy could be a good solution.
This legal arrangement grants each party equal ownership of the purchased asset. Financial obligations are also equally shared among the owners. But this co-ownership agreement requires careful consideration as equal rights come with equal responsibility.
Joint tenancy is a legal arrangement between two or more people regarding their property ownership and rights.
Distinct features of a joint tenancy arrangement are:
While joint tenancy can apply to personal property, business ownership, vehicles, and brokerage and bank accounts, this form of co-ownership is most commonly used for real estate investments.
For joint tenancies to be valid, four legal requirements or "unities" must be met.
The joint tenancy agreement is no longer valid if any owner fails to meet the four unities or one unity is broken. So, if one joint tenant sells or transfers their shares without the consent of the others, the joint tenancy is terminated.
Let’s look at a real-world example of how joint tenancy would work if you and your spouse wish to buy a vacation cabin in the mountains.
To create a joint tenancy ownership, most jurisdictions require that the criteria of four "unities" must be met. To form a joint tenancy, you and your spouse should:
A real estate attorney can help you satisfy the legal requirements and ensure proper documentation.
Joint tenants have equal rights and responsibilities. This means each co-owner has identical privilege and authority to use the location according to their wishes without the other's consent. So, you can't restrict your spouse from using the vacation cabin or mandate that they use a designated portion of the cabin.
Additionally, joint tenants share all financial burdens. This extends beyond making an equal down payment—all property taxes, maintenance expenses, and mortgage payments must be split amongst the joint tenants. For example, if a room in the vacation cabin floods, both tenants must cover the repairs. Similarly, any income from joint ownership, like rent or capital gains, must be distributed to all.
What's unique about a joint tenancy vs. tenancy in common is that it creates the right of survivorship. In simpler terms, this means that if one tenant dies, the surviving joint tenant automatically assumes the ownership rights. So, if your spouse dies, you, as the surviving spouse, will become the sole owner of the vacation cabin.
The right of survivorship eliminates the need for the property to undergo the probate court system, where the deceased owner's will is examined and assets are distributed to family members.
As they say, “life happens” and there might be cases where the joint tenancy needs to be dissolved. A common reason for severing a joint tenancy is to ensure that one's ownership portion gets passed to their children instead of the surviving tenant.
This process—legally known as severance—can occur in a few ways:
The specific laws on breaking a joint tenancy vary from state to state. An estate planning lawyer can advise you on your state's severance process and highlight any financial and tax implications it may bring.
There are two sides to every coin, and while joint tenancy has its pluses, it can also create certain problems. It's important to understand both sides before deciding whether this form of joint ownership makes sense for you.
Joint tenancy offers a range of valuable benefits, especially for those family members or investment partners who want to share asset ownership and prefer simplified transfers and shared responsibility.
Of course, there are some trade-offs to co-owning property through a joint tenancy.
Property purchase and estate planning are complex and dynamic areas of law. While joint tenancy is an efficient way of succession planning, navigating it can become restrictive. Working with a lawyer will help you set things right from the beginning, saving you a lot of stress, money, and confusion.
A LegalZoom lawyer will look at all corners of this major life commitment and provide you with the comprehensive advice and protection you need. Some attorneys may even suggest signing a joint tenancy operating agreement to clarify expectations and responsibilities.
Joint tenancy is ideal for those who share a stable, long-term relationship. Spouses, parents, siblings, or even business associates could be perfect. Why? The right of survivorship clause will automatically pass your portion of the property to the surviving partner, no questions asked. This requires a high level of trust. Giving such a significant investment to someone you have a tumultuous relationship with is risky.
Also, since all decisions must be made together, forming a joint tenancy with someone you get along with and who shares the same set of values and financial outlook will lead to a smoother ownership experience.
Each joint tenant needs to shoulder an equal share of the financial burden. Therefore, it's advisable to examine each interested owner's financial statement closely. Exchange all information that will give a clear picture of one's ability to pay, including bank statements, loan histories, and investment portfolios. Look at alternative forms of ownership if you sense that one party is being sneaky about their finances or is hiding liabilities.
In joint tenancy, you can't buy or sell your ownership without consent from the others. Neither can you control who will get your share after your death. If you find the rigidity of this unappealing or have children and other beneficiaries and seek more control over who gets your inheritance, explore other ownership methods. Tenancy in common allows an owner to will their share to their children or other beneficiaries.
Joint tenants are subject to federal and state taxes. For instance, if you sell the property and make money off it, all owners have to pay part of the capital gains tax. Certain tax implications depend on whether the joint owners are married.
Tax laws are complex. Consult a tax attorney to evaluate your options and choose a solution that saves you time and money.
Even when joint tenants don't intend to break their shared ownership, it's best to plan for scenarios that might involve a split. Proactively considering these will help you create processes and procedures that will ensure a smoother and safer ending if it comes to that.
As mentioned earlier, a joint tenancy deed supersedes the last will of the deceased owner. If you are not okay with your stake going to the surviving owners and want a say in who gets your assets, you may be better off becoming a tenant in common. A clear estate plan will also help your heirs and beneficiaries minimize their tax burden.
The key differences between the forms of co-ownership are the right to survivorship, ability to make decisions without each other’s consent, and ability to hold different ownership percentages. For instance, in a tenancy in common, you can list that your stake be passed on to your heir. And, if even you own just 45% of the property, you still have an undivided interest in the property and can have the entire property available for your use.
Yes, it's possible to change a joint tenancy into a tenancy in common or a single ownership. To convert to a tenancy in common, one or both owners need to execute a transfer or quit deed. To gain full ownership, one party needs to transfer their share to the other. Both processes are complicated and could have tax implications; an attorney is best equipped to guide you.
Each joint tenant must contribute to property expenses like maintenance, taxes, and mortgage. If one joint tenant stops paying, the other joint tenants may need to step in and fill the gap to avoid more financial issues. However, legal action can also be taken to enforce the ownership agreement.
Joint tenancy is an attractive option for estate planning, but it's not the only one. One of the main reasons to opt for joint tenancy is to avoid probate and speed up asset transfer. The flip side is that once the last joint tenant dies, probate is inevitable unless the assets are held in a trust. Joint tenancy can also complicate matters if a relationship sours because you can’t make a decision without the other’s approval. An estate attorney can help evaluate whether joint tenancy satisfies your estate plan goals.
This article is for informational purposes. This content is not legal advice, it is the expression of the author and has not been evaluated by LegalZoom for accuracy or changes in the law.
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