When it comes to property ownership, joint tenants with right of survivorship (JTWROS) is a popular and widely used form of co-owning a property. JTWROS offers unique advantages if you want to share property ownership with one or more individuals, often spouses, family members, or business partners. The arrangement can provide a seamless transfer of ownership upon the death of one co-owner with no need for probate or complicated legal processes.
What Is Joint Tenants With Right of Survivorship?
Joint tenancy is a legal ownership arrangement in which two or more individuals jointly own a property, sharing equal rights and obligations. This legal structure is commonly used by married and cohabiting couples, friends, relatives, and business partners.
It’s important to note that while a tenant generally refers to someone who rents a property, in this context, tenancy relates to ownership, not leasing. “Undivided interest” refers to an ownership stake in a property where each owner has an equal and indivisible share, granting them the right to use and enjoy the property. In a joint tenancy with the right of survivorship (JTWROS), each co-owner holds an undivided interest in the property.
To establish a joint tenancy, all parties must simultaneously receive equal shares through the same deed. The right of survivorship makes joint tenancy different from other types of co-ownership. If one owner passes away, the surviving joint tenant automatically inherits the deceased owner’s legal rights to the property. Long-term partners and couples often choose joint tenancy to ensure the surviving co-owner can assume complete property control without probate court proceedings. While alive, each owner in a joint tenancy bears equal responsibility for financial obligations, such as fees, mortgage payments, property taxes, and maintenance. If one owner cannot fulfill their commitments, the other is held fully and equally responsible.
Joint tenants with right of survivorship can be designated for various accounts and assets, including:
- Real estate
- Bank accounts
- Brokerage accounts
- Personal property, such as vehicles, artwork, collectibles, and other valuable items.
Retirement accounts such as IRAs, Roth IRAs, and 401(k)s cannot be jointly owned as JTWROS. Instead, designating beneficiaries can help these accounts bypass probate upon the account holder’s death.
Requirements of Joint Tenant With Right of Survivorship
Creating a joint tenancy with right of survivorship requires the fulfillment of four unities. These unities are necessary for joint tenants to hold title in this manner:
- Unity of time: All joint tenants must acquire the property simultaneously.
- Unity of title: Each joint tenant must obtain ownership through the same legal instrument, such as a deed.
- Unity of interest: Each tenant must have an equal interest. Each has an equal ownership share, regardless of individual contributions.
- Unity of possession: All joint tenants have an equal right to possess and enjoy the entire property.
If any of these unities are violated, the joint tenancy becomes a tenancy in common. Transferring or altering shares within a joint tenancy is impossible without destroying the arrangement. When creating a JTWROS agreement, the language must be extremely clear since a joint tenancy can be automatically assumed to mean tenants in common in some states.
Key Characteristics of a Joint Tenant With Right of Survivorship
The following key characteristics of a JTWROS agreement make it different from other forms of co-ownership:
Right of Survivorship
In a JTWROS, when one of the owners passes away, the surviving owner automatically assumes full ownership of the property, thanks to the right of survivorship. This provision eliminates the need for probate or the transfer of assets through an estate. The right of survivorship ensures that the surviving owner immediately inherits the deceased owner’s share without court intervention.
Number of Tenants
Joint tenancy allows any number of individuals to hold property together. For instance, if four people are joint tenants, the three surviving owners will collectively possess the property when one owner passes away. This pattern continues as each owner dies, resulting in the remaining joint tenants co-owning the property until the last owner’s death.
The Right to Convey the Property
In a joint tenancy, individual tenants can sell or transfer their shares to third parties without needing permission from the other co-tenants. If Tenant A sells their interest to Tenant D, the joint tenancy between Tenants B and C would remain intact, and they would continue to be joint tenants with survivorship rights. However, Tenant D would not become a joint tenant with Tenants B and C because he did not acquire the property simultaneously or through the same legal instrument. Instead, Tenant D would become a tenant-in-common with B and C. In the event of Tenant D’s death, his share of the property would be passed on to his heirs or decedents as part of his estate rather than to Tenants B and C.
Severing a JTWROS
One tenant can unilaterally sever joint ownership without needing approval from the others. The easiest way to accomplish this is by selling your share of the property to another person, who becomes a tenant in common with the remaining joint tenants. Alternatively, a joint tenant can transfer their interest to themselves, converting their ownership into a tenancy in common.
Tax Implications
The tax implications of inheriting shares in a jointly owned property can be complex, depending on the marital status of the owners of the property. For spouses, assets in JTWROS accounts may receive a partial step-up cost basis when one spouse passes away, potentially reducing capital gains taxes upon selling the property. Non-spouses may face gift tax liabilities if they inherit ownership, with smaller accounts potentially falling under the gift tax exclusion limit. We recommend speaking with a tax professional or estate planning attorney to understand your tax liability and get personalized legal advice.
Advantages and Disadvantages
Before entering into a joint tenancy with the right of survivorship, it is important to weigh the benefits and drawbacks of this type of arrangement. Here are a few to consider.
Advantages:
- Avoids probate: Assets transfer directly to joint owners, bypassing the lengthy probate process and ensuring a smooth transfer of ownership upon death.
- Immediate continuity: Assets owned as JTWROS may be able to be transferred immediately, potentially allowing the surviving owner(s) to access and use the property without delay or interference from probate proceedings.
- Shared ownership and responsibility: All owners share the property's benefits and liabilities, promoting collective responsibility for bills, taxes, maintenance, and repairs.
Disadvantages:
- Inability to pass ownership to heirs: Ownership may not be willed to individuals outside of the joint tenancy, potentially limiting the control over asset distribution upon death.
- Relationship dependency: Entering into a JTWROS typically requires trust and a stable relationship between co-owners, as unanimous agreement is often necessary for decisions regarding the property. Conflicts or deteriorating relationships may complicate the arrangement.
- Shared financial responsibility: All owners are collectively responsible for financial obligations, including debts and payments. Financial strain or default by one owner can impact the others and potentially jeopardize the arrangement.
Other Types of Shared Property Ownership
In addition to JTWROS, two other primary forms of shared ownership exist.
Tenancy in Common (TIC):
- Multiple owners with unequal shares: TIC allows for shared ownership of a property, where each owner can have a different percentage of ownership. For example, two owners may have 25% each while another has 50%.
- Flexibility in ownership transfer: Owners can buy, sell, or inherit their shares independently without requiring permission from other owners. They can also sell or borrow against their portion of the property at any time.
- Non-related co-ownership: TIC allows individuals who are not related to jointly own a property. They can enter the arrangement at different times and have proportional privileges and interests based on their ownership share.
- Inheritance rights: Owners can pass on their ownership shares to their heirs, ensuring the continuation of ownership within their family or chosen beneficiaries.
Tenancy by Entirety:
- Exclusive to married couples: Tenancy by entirety is a co-ownership model specifically designed for married couples.
- Equal ownership: Both spouses have an equal and complete 100% ownership interest in the property.
- Consent is required for property actions: Neither spouse can divide, sell, or transfer the property without the other's consent.
- Protection from individual debts: If one spouse has personal debts, creditors cannot place a lien on the property.
- Survivorship rights: Upon the death of one spouse, the surviving spouse automatically becomes the sole owner of the entire property without the need for probate.
The Bottom Line
If you’re a real estate investor or interested in becoming one, understanding the forms of co-ownership and how they impact survivorship, taxes, and expenses is key. This ensures that you’re protected if things go wrong with a partnership, and you’re not paying additional fees and taxes when the arrangement is terminated or changes due to a deceased party.
