Joint Tenancy

Joint tenancy is like a tenancy in common, but the main difference is that the joint tenants have an undivided interest with rights of survivorship. An undivided interest is an ownership right to use and possess the entire property. However, no single co-owner can mortgage, sell, devise, or otherwise convey any piece of the property without the consent of all joint tenants, but he can transfer his own undivided interest in the whole property to another, who will then be a tenant in common with the remaining joint tenants. If there is only one remaining tenant, then the property will be owned as a tenancy in common, where each tenant can convey his fractional interest in the property to another. Often, joint tenants are relatives who have received the property from a will. Note that the joint tenant's interest in the property is distinguished at death, so the property never enters probate nor can it be devised to heirs. For the same reason, creditors of a deceased tenant cannot usually attach any interest to the property, because his interest is extinguished at death (although some states allow attachment under certain conditions); the interest in the property is, instead, reapportioned to the surviving tenants.

When a joint tenant dies, the right of survivorship entitles each surviving co-owner to an equal share of the deceased's share of ownership — thus, each joint tenant maintains an equal share with the surviving joint tenants. However, in some states, the deed must explicitly confer the right of survivorship. The last joint tenant will own the land as a tenant in severalty (meaning that the tenant owns the property separately and distinct from any other, or, more simply, the tenant has sole ownership), and will enjoy all the rights as a sole owner of property.

A joint tenancy can only be created by intention or by will, not by implication or operation of law. The deed must explicitly stipulate a joint tenancy, and the owners must be explicitly identified as joint tenants.

In many states, 4 unities must be satisfied to create a joint tenancy:

  1. unity of possession;
  2. unity of interest;
  3. unity of time;
  4. unity of title.

Corollaries of these requirements of unity are that:

Consequently, in many states, if an owner in severalty wants to create a joint tenancy, the owner must convey the property to an intermediary — a straw man — who then conveys the title to the joint tenants, including the original owner. Some states have eliminated the need for a straw man, so the owner in severalty can convey the property to herself and to others as joint tenants.

A joint tenancy can be terminated when any of the joint tenants convey their ownership interest to another party, who then becomes a tenant in common with the remaining joint tenants, but the original joint tenants retain their rights and interest. A joint tenancy can also be terminated by a partition suit, which is a lawsuit to either partition the property so that 1 or more of the joint tenants has title to a specific portion of the property, or to petition the court to have it sold, dividing the proceeds of the sale equally among the joint tenants.

Joint Tenancy Law

Almost all states allow joint ownership of property, but a few states have more restrictions than most. Alaska, Oregon, and Tennessee allow only joint ownership of property as tenants by the entirety, a type of joint tenancy restricted to married couples. Wisconsin allows a similar form of ownership for any property acquired after January 1, 1986, which they refer to as community property with rights of survivorship. In Texas, a joint tenancy can only be created by a separate written agreement between the joint tenants.

Joint Tenancy Bank Accounts

A joint tenancy bank account differs from other types of joint tenancy property in that their share of ownership in the account has no real meaning, since any of the joint tenants can withdraw all the money. To prevent the withdrawal of all the money by one tenant, some banks allow the opener of the account to require the signatures of all the joint tenants for any withdrawal of money.

A joint tenancy bank account is often used as a nonprobate transfer device, but this use has several disadvantages. Probate courts often challenge the joint tenancy as something that the account holders did not actually intend, but simply signed the form that many banks use as a default to open accounts with multiple users. Although unlikely, a joint tenancy bank account may also incur a gift tax liability for the tenant who contributed most of the money for the account. However, any gift tax liability will only be incurred in the year when the other joint tenants individually withdraw more than the annual gift exclusion, which, in 2011, was $13,000.

Joint Tenancy Safe Deposit Boxes

Safe-deposit boxes can also be held as a joint tenancy, which always means that any of the joint tenants has access to anything in the safe-deposit box. However, it does not necessarily mean that the contents of the safe-deposit box are also held under joint tenancy, unless it is stipulated in the documents that must be signed when opening the account.

Joint Tenancy Taxation

If a husband and wife own any property as joint tenants or by tenancy by the entirety, then both spouses own an equal interest in the property, so when one spouse dies, 50% of the market value of jointly owned property is included in the decedent's estate, regardless of how much the decedent actually contributed to the property. For unmarried joint tenants, IRC §2040 attributes the value of all the property to the first joint owner to die, less whatever any of the surviving tenants can prove that they had contributed.

A joint tenancy with a non-spouse can also be a taxable gift, if one joint tenant contributed more than half of the money for the property, and the amount exceeded the annual gift tax exclusion. Although no gift taxes have to be paid, a gift tax return must be filed, reducing the total lifetime exemptions available to offset future gift or estate transferences.

The surviving joint tenants receive a stepped-up basis for only the decedent's share of the property — the tax basis of their own shares remains the same. However, if the surviving joint tenants cannot prove that they paid their share for the property, then the entire property will receive a stepped-up basis, since it will be includable in the estate of the decedent. If community property is held as a joint tenancy, then the entire property receives a stepped-up basis upon the death of one spouse, regardless of what the decedent contributed.

Any property for which a joint tenancy was established before 1977 and for joint tenancies in common-law states receives a full stepped-up basis, even if the joint tenants are not married. However, the value of the joint property is includable in the estate of the first joint tenant to die.

Tip: Anyone who has bought property as joint tenants before 1977 should not change the form of ownership, such as putting it into a living trust, since many localities reassess real estate for taxation when it changes hands. However, if an owner of real estate creates a joint tenancy while retaining a partial interest in the property, then, in most localities, the change of ownership does not usually trigger a reassessment, although this should be verified for a particular jurisdiction.

Advantages and Disadvantages Of Joint Tenancy

A joint tenancy is usually not the best way to avoid probate, but may be advantageous when one of the joint tenants is likely to die soon; it avoids a lot of paperwork, and is simpler than most other probate avoidance schemes.

However, joint tenancy has several disadvantages:

In rare cases, if the joint property is valuable enough, then the property may be subject to double taxation, since estate taxes may have to be paid when the 1st joint owner dies, and then again when the 2nd or other surviving joint owners die.

A multiple party account without the right of survivorship (a.k.a. multiple-person account), which banks sometimes call a convenience account, may be more advantageous in some situations than a joint tenancy, such as when the child wants to help an aged parent manage their bank account. One of the account holders acts as a fiduciary or agent for the other. The agent must act in the best interest of the other account holders and the account is not subject to any creditors of the agent. Since there's no right of survivorship, the agent does not receive the property in the account when the other account holders die, but rather, it becomes part of their estate. Therefore, a multiple-party account does not avoid probate, but it may help to avoid conflicts in certain situations, such as can occur in a joint tenancy, where children who were not co-tenants to a parent's account may feel entitled to some portion of the money.

Although a durable power of attorney is a more effective for helping an aged parent, the multiple-party account is easier to set up and less time-consuming. About half the states have adopted the Uniform Multiple Person Accounts Act, but even in those states that have not adopted the model legislation, a person may, nonetheless, set up such an account at a bank if it offers it.

Creating a Joint Tenancy

For titled property, a joint tenancy is easy to create, but the exact language required on the deed differs from state to state, and some states may have other requirements. For instance, a joint tenancy in Florida can only be created by deed and in Texas the joint tenancy owners must sign a separate written contract agreeing to the joint tenancy. Generally, the contract must specify the joint tenancy with specific words such as "joint tenancy with right of survivorship," sometimes abbreviated as "JTWROS."

To create a joint tenancy for personal property, the joint tenants must sign a document declaring that they own the property as joint tenants. The document does not have to be filed with any government agency, but the signatures should be notarized, as evidence of the joint ownership agreement.

Generally, a joint tenancy is ownership by equal shares, because most states do not provide a means of showing the percentage of ownership on the deed. However, Colorado, Connecticut, Ohio, and Vermont do have deeds where differing percentages of ownership can be written. In states that don't allow it, unequal ownership can only be achieved as tenants in common.

Obtaining Title to Joint Tenancy Property After the Death of a Joint Tenant

The automatic right of survivorship simply means that the legal task of transferring the deed to the remaining joint tenants is relatively simple. However, the surviving tenants still must perform certain procedures to remove the name of the deceased joint tenant. Generally, the joint tenants must establish that the joint tenant has died by filing a copy of the death certificate with the appropriate government agency or recorder of title; then they must file a document, which is usually an affidavit, establishing that the surviving owners are the sole owners of the property.

One problem of joint tenancy is that tax liens may be filed by the state if the state has either an estate or inheritance tax. Tax liens may be imposed on all the joint property or just the deceased joint tenant's property. Clear title cannot be transferred until the tax liens are removed, which may involve posting a bond, filing a final inheritance or estate tax return, or satisfying other requirements imposed by law.

If the property of a joint tenancy is valuable enough for the joint tenant to owe federal estate taxes, then clear title may not be obtainable until the value of the taxable estate is determined and the taxes are paid, usually with the filing of the estate tax return, which could be 9 months or more after the death of the joint tenant. However, the IRS may allow the transfer of joint tenancy property if there is an accurate estimate of the property value and enough assets to pay the decedent's estate taxes.