Pros and cons of joint-tenancy home ownership

Surprising things can happen in dire circumstances
By: Robert J. Bruss: Inman News
"How would you like to take title to your new home, Mr. and Mrs. Buyer?" the attorney or title closing settlement officer asks.

Thinking fast, you wisely ask, "Well, how do most married couples take title?"

The reply is usually something like: "Most couples take title in joint tenancy."

Not wanting to appear stupid or uninformed, you reply, "That's fine with us." But do you fully understand the pros and cons of holding joint-tenancy title?

THE PRIMARY JOINT-TENANCY ADVANTAGES. To be legally correct, joint-tenancy real estate ownership means "joint tenancy with right of survivorship." A few states require use of those exact words on the deed. But in most states, "joint tenancy" is sufficient.

Survivorship means the joint tenant who outlives the joint tenant co-owner(s) automatically receives the deceased's share of the property without probate court costs or delays. Probate court avoidance is considered the major joint-tenancy advantage.

All that is usually necessary to clear the title of a deceased joint tenant's name is to record a certified copy of the death certificate and an affidavit of survivorship with the local recorder of deeds.

The will of a deceased joint tenant has no effect on their joint-tenancy property. However, joint tenants still need a written will. In the event of simultaneous death of all the joint tenants, such as in a plane crash, the will of each deceased joint tenant determines who receives their share of the property.

Or, in the unlikely event one joint tenant kills another joint tenant, the wrongdoer cannot receive the deceased joint tenant's share by survivorship so the deceased joint tenant's will then becomes important.

Although joint tenancy usually involves two co-owners, such as husband and wife, there can be an unlimited number of joint tenants. But they all must take title at the same time by the same deed, and they all own equal shares.

For example, suppose John and Mary Buyer purchase their home as joint tenants. Each therefore owns a 50 percent share. However, when their daughter, Suzy, becomes 18 they decide to add her as an additional joint tenant.

To add Suzy to the title, John and Mary sign and record a quitclaim deed from themselves to John, Mary and Suzy as joint tenants with right of survivorship. The result is each of the three joint tenants now own a one-third interest in the home.

TENANCY BY THE ENTIRETIES FOR MARRIED COUPLES. In 24 states, a husband and wife can hold title as tenants by the entireties, which is very similar to joint tenancy. However, neither spouse can convey their tenancy by entirety share without the other spouse's signature.

This ownership form overcomes the joint-tenancy disadvantage that one joint tenant can transfer his/her share without approval of the other joint tenant(s), thus breaking up the joint tenancy and creating a tenancy in common.

Tenancy by the entireties for husband and wife is allowed in Alaska, Arkansas, Delaware, Florida, Hawaii, Indiana, Kentucky, Maryland, Massachusetts, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, Vermont, Virginia, Wyoming, and the District of Columbia.

SEVEN PROS AND CONS OF JOINT TENANCY. Before consulting your attorney or other trusted adviser to determine if joint tenancy with right of survivorship (JTWRS) is right for your situation, it pays to know the pros and cons:

1. A JOINT TENANT'S WILL DOES NOT AFFECT JTWRS PROPERTY. Except for joint-tenancy simultaneous death or murder situations, a written will has no effect on JTWRS property. Especially in second marriages, where each spouse often wants to leave their half of the property to children of their first marriage, better alternatives might be holding title in a revocable living trust or as tenants in common.

2. PROBATE COSTS AND DELAYS ARE AVOIDED. When a joint tenant dies, his or her share automatically passes to the surviving joint tenant(s) without probate court interference. This is considered the major joint-tenancy advantage.

3. JOINT TENANT'S SHARE CAN BE ATTACHED BY JUDGMENT CREDITORS. Unknown to most joint tenants, judgment creditors of one joint tenant can attach that person's share of the property. Or, if a joint tenant files bankruptcy and there is sufficient equity in the property, the bankruptcy court can order the property sold with the proceeds divided among the co-owners.

However, after a joint tenant dies, creditors cannot attach the deceased's share, which automatically passed to the surviving joint tenants.

4. IN A PARTITION LAWSUIT, ONE JOINT TENANT CAN FORCE A SALE OF THE PROPERTY. In most states, one joint tenant co-owner can bring a partition lawsuit to force a sale of the property. The same result applies to tenants in common.

5. ALL JOINT TENANTS CAN OCCUPY AND MANAGE THE PROPERTY. Although each joint tenant has the right to occupy and manage the property, this can become a problem if one joint tenant refuses to pay his or her share of the property expenses.

However, if one joint tenant pays all the expenses, there is a right of reimbursement for necessary costs, such as property taxes.

If a joint tenant is under 18, a minor cannot convey title or pay their share of the property expenses unless represented by a court-appointed guardian. For this reason, minors should usually not be added to the title as joint tenants.

Similarly, if a joint tenant becomes incapacitated, such as with Alzheimer's disease or a severe stroke, a court-appointed conservator might be necessary to represent the incapacitated joint tenant. However, this problem can be avoided if title is held in a revocable living trust instead of joint tenancy.

6. APPROVAL OF CO-OWNERS IS NOT NEEDED TO BREAK UP A JOINT TENANCY. Except for tenancy by the entireties between husband and wife, one joint tenant can secretly convey his/her share to a third party, thus breaking up the joint tenancy and creating a tenancy in common.

The most famous court decision on this issue is the 1980 decision in Riddle v. Harmon (162 Cal.Rptr. 530). Shortly before her death, the wife secretly conveyed by a quitclaim deed her joint-tenancy share to herself as a tenant in common. After her death, the surviving husband presumed he owned the entire property as the surviving joint tenant. But the court ruled the late wife's secret deed to herself as a tenant in common made her half of the property subject to her will, which left her assets to a third party. The widower husband retained his 50 percent share as a tenant in common.

7. NON-SIMULTANEOUS DEATH OF JOINT TENANTS CREATES UNINTENDED RESULTS. When all joint tenants die at the same time and the order of death cannot be determined, such as in a plane crash, the share of each deceased joint tenant then passes according to his/her written will (or by the state law of intestate succession if no will is found).

However, if one joint tenant survives the other for just a short time, his or her heirs receive the entire property. That happened a few years ago in Berkeley, Calif. Joint-tenant property owners Larry and his girlfriend Lana were on an evening walk. A drive-by shooter's bullets hit both Larry and Lana.

They were rushed to a nearby hospital where Lana died at 2:58 a.m. Larry was kept alive on a ventilator until 4:55 a.m. when he died. Because Larry survived Lana, he was the surviving joint tenant of their properties. His heirs inherited all the joint-tenancy property under his will and Lana's relatives received nothing because she was not the surviving joint tenant.

CONCLUSION: Although holding title as joint tenants (or tenancy by the entireties between husband and wife where allowed) offers many benefits, it also provides possible disadvantages. Other co-ownership alternatives to be considered include tenants in common and revocable living trusts. Consultation with your attorney and tax adviser is recommended.