Owning Real Estate As Tenants In Common Can Be A Nightmare For The Surviving Co-Tenant
When people buy property together, they usually think about owning that property with the other buyer. They rarely think of sharing the property with the other buyerís heirs. Nevertheless, when you take title to property as tenants in common, owning the property with the co-tenantís heirs by intestacy or the beneficiaries of his or her will is a very real possibility. The interpersonal dynamics of property ownership between the party who inherits the deceased co-tenantís share and the surviving tenant in common can make this type of property ownership a nightmare, especially if the property is the surviving co-tenantís primary residence. In some cases, several heirs inherit a share of the property, compounding the potential problems. When property is owned as tenants in common, especially when one or more of the co-tenants inherited the property, disagreements among the owners are common. If the co-tenants cannot agree on how to share, divide or sell the property, it can result in costly litigation.
Perhaps you purchased a house with your significant other or partner. Now imagine your partnerís mother inherits a 50 percent share of the house after your partner suddenly dies. Maybe you never got along with your partnerís mother, but now she has the right to occupy the house, enter the premises, sell her share of the property to someone else, and even force the sale of the entire property. If you cannot afford to move or simply do not wish to move, it can be devastating to have another person inherit an ownership interest in your home. If one co-tenant files a legal action for partition, the court may decide what will ultimately be done with the property.
When you own property as tenants in common, it is essential to have a plan for what may happen on the death of a co-tenant. Each co-tenant should execute valid estate planning documents, such as a will or living trust, which designate a beneficiary or beneficiaries of his or her share of tenants in common property. Careful consideration should be given to the choice of beneficiaries and how the surviving co-tenant will be affected if a particular beneficiary inherits a share of the property. Consult an attorney about whether you should also enter into a written agreement with the other co-tenant regarding each party's rights to the property. See our Estate Planning Guide for Spouses and Partners for more information.
Estate Planning Considerations When Property is the Primary Residence
When a couple holds title to their primary residence as tenants in common, the couple should carefully consider how the surviving co-tenant will be affected when one co-tenant is deceased. The first consideration is how each co-tenantís share in the property will pass if he or she dies without a will or intestate. The next consideration is how each co-tenantís share will pass under any will or trust either may have executed.
To the extent the result in any of these scenarios is that a share of the primary residence will be inherited by someone other than the surviving partner, the couple should discuss how the surviving co-tenant and others living in the home would be affected. For example, if the deceased co-tenantís share of the residence passes to another heir rather than the surviving spouse or partner, would the surviving co-tenant be able to find another place to live? If the surviving spouse or partner does not inherit the deceased co-tenantís share, will he or she be able to afford housing without the equity represented by the deceased co-tenantís share, especially if the couple has children or pets?
Depending on the answers to these and related questions, the couple may determine it is better for them to own their primary residence as joint tenants or joint tenants with right of survivorship rather than as tenants in common. Tenants by the entirety and community property with right of survivorship are other forms of title available to spouses and partners in some states.
Despite the legitimate reasons a person may wish to leave his share of the property to siblings, parents, children or other heirs, if the impact of an ownership share in the couple's home passing to someone other than the surviving spouse or partner is too great, changing the title to joint tenancy, or another form of ownership with a survivorship feature, may be the better alternative. If one spouse or partner wishes to leave an inheritance to a particular individual, estate planning methods such as life insurance, naming beneficiaries on IRA's and other retirement accounts, and pay on death accounts are some of the alternatives to bequeathing a share in the couple's home.
If a couple owns their primary residence as joint tenants or joint tenants with right of survivorship, the surviving spouse or partner owns 100 percent of the real estate upon the death of one of the joint tenants, subject to any liens on the property. Also, holding title as joint tenants is a way to avoid probate whereas tenants in common property is subject to probate.
If one of your estate planning objectives is to provide some measure of security for your surviving spouse or significant other, discuss the advantages and disadvantages of joint tenancy, tenancy in common, and other forms of title with an estate planning attorney. Certain forms of title offer asset protection advantages as well. Before making any change to title to property, consult a lawyer about the potential tax consequences. See title to property for more details. If you are considering making a will or living trust, see Plan Your Estate.