When deciding on a type of co-ownership for a real estate purchase, many individuals are torn between two different types of co-ownership forms; joint tenancy and tenancy in common. With joint tenancy, the surviving joint tenant will become the owner of the entire parcel of real estate immediately upon the death of the other joint tenant, under the Right of Survivorship.
In some states there is another choice, Community Property, but that situation is not considered in this article. For future reference, the ten Community Property states in the U.S. are Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Looking at our topic of Joint Tenancy Vs. Tenants In Common, both of these forms of joint ownership have good points and bad points. The relationship of the parties, including the nature of their interest in the property, should dictate which form of co-ownership is the best choice.
The main advantage of a joint tenancy agreement is that the transfer of the ownership of the real estate to the surviving owner is automatic upon the death of one of the co-owners. In this way, the individuals can bypass having the asset go through probate. This will relieve the surviving partner of a number of probate tasks and expenses. The major disadvantage of joint tenancy is there is no easy resolution for disputes between the co-owners.
Because they both own equal shares of the real estate, they are both equally responsible for the management of that property. In the event of a disagreement, many tasks may not get accomplished and the real estate will fall into disrepair. One partner may sell his share of the real estate covered by the joint tenancy agreement, but once the property has been transferred, the joint tenancy immediately reverts to tenancy in common.
Tenancy in Common
The main advantage and disadvantage of tenancy in common is the same, the partner who dies dictates who now owns that portion of the property. With tenancy in common, the portion of the property controlled by the deceased joint tenant will pass to the individual designated in the original tenant’s will. In the event of no will, ownership will pass to the heir of the deceased.
Many business people have seen their partner of decades pass away and then control of their portion of the real estate goes over to someone who has no desire to have anything to do with the property, or has no understanding of the nature of the business. In these cases, the only option available to the surviving partner is to buy the portion of the real estate controlled by the other party. This can be quite expensive, especially if there is tension between the parties.
Before deciding which form of co-ownership to choose, the pros and cons of each choice must be weighed carefully. The decision may have a major impact in the future and the consequences of an ill advised decision can cause problems for many years to come. Whether joint tenancy or tenancy in common is chosen, the decision should be made in the best interest of all parties involved.