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What is joint tenancy in real estate?

What is joint tenancy in real estate?
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When purchasing a property with others — whether its a spouse, a relative, a friend or a business partner — how do you set things up so that the division of the property is fair and equitable? The way you legally title the property matters, and joint tenancy can be a good solution.

What is joint tenancy?

Joint tenancy is a legal way to title property when multiple individuals purchase it together, with equal interest in and equal rights to the property.  The most common form of joint tenancy is for married couples who want to own their home equally. But it can be an option for any group of people who want to co-own property.

Joint tenancy with rights of survivorship

Here’s one reason why this ownership method is popular for married couples: In a joint tenancy with rights of survivorship (JTWROS), if one of the owners passes away, their portion of ownership automatically passes to the other owner or owners. That means a newly widowed spouse can remain in the home with full ownership and no legal battles to fight.

Married or not, JTWROS allows the property in question to skip probate and pass directly to the surviving owner(s). Avoiding probate is especially relevant if there’s a need for one of the tenants to remain in the property continuously as their residence or to keep a business running.  To remain in the property, the survivor will only need to provide proof of the JTWROS and a death certificate or other proof of passing for the deceased.

How does joint tenancy work?

A joint tenancy is created at the time a property is purchased. For a joint tenancy to be created, all of the following criteria, called the “four unities,” must be met:

  • All tenants must obtain the property at the same time.
  • All tenants must have acquired the title of the property by the same document.
  • All tenants must share equal interest in the property.
  • All tenants must exercise equal rights to ownership.

If any one of the above conditions aren’t met, then you may legally have a tenancy in common instead of a joint tenancy. More on that next.

Joint tenancy vs. tenancy in common

Despite the similar-sounding names, these two forms of legal title are not the same thing. With a tenancy in common, owners have more control over who gets their share of the property in the event of their death. Here are a few key differences:

JOINT TENANCY TENANCY IN COMMON
If one tenant passes, the property automatically goes to the surviving tenant If one tenant passes, they can leave their share of the property to whomever they wish
Four unities must be met, namely that all tenants must have equal interest in the property at the time of purchase Equal interest, rights and acquisition is not required — one tenant in common may own a larger share than another
Terminating a joint tenancy before one tenant dies, called “severance,” typically leads to a tenancy in common among the rest Any tenant in common can sell their share in the property at any time

Joint tenancy pros and cons

As with every aspect of buying real estate, joint tenancy has pros and cons that should be considered when choosing this option.

Pros

  • With a joint tenancy, if one tenant passes away, the property ownership transfers directly to the surviving tenant or tenants. This makes it a good choice for married couples who both call the property home.
  • In addition, joint tenancy allows the property to bypass probate entirely in the event of a death. This saves a lot of headaches and inconvenience during an already difficult time.
  • All joint tenants enjoy equal ownership and equal rights.

Cons

  • In the event of your death, property owned in a joint tenancy automatically transfers to your other tenant(s). If you are hoping to leave your property to a different heir, or to a charity or other organization, you should look into other options.
  • A joint tenancy can be terminated by a creditor attempting to extract a debt from just one tenant, even if the other tenants do not owe any debts. So it’s not a good situation if one of the tenants is in debt, has bad credit, or has the potential to be involved in a liability suit (either personally or professionally, such as medical malpractice).
Written by
Rae Hartley Beck
Contributing writer
Rae Hartley Beck is a writer and editor with over eight years of experience in personal finance. Her work has most recently appeared in Bankrate, MoneyWise and Investopedia. Rae specializes in credit card rewards, investing, real estate, home improvement, lending and financial advice for millennials, Gen Z, Gen Alpha and their parents.
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