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Joint Tenancy Helps Avoid Probate
In layman’s language, a joint tenancy is a legal method for two or more people to share ownership of real estate or other valuable assets.
When one owner dies, the other owner, or owners, automatically own the deceased owner’s share.
So a will is not required to transfer the home, bank account or equity portfolio in the joint tenancy, because it will go directly to the surviving joint tenants without the delays and costs that probate court creates.
Well, at least, much of the time — depending on the type of joint tenancy chosen.
There are four types to choose from, but not all have a right of survivorship — the key element to staying out of probate court. Two types accomplish that. One might. And another doesn’t.
Tenancy by entireties is probate-proof. But this agreement can only be made between a husband and wife — no children or siblings allowed.
Each spouse holds half ownership of an asset, say a home, and when one dies the other takes possession without probate. It’s clean and about as simple as it can get.
Some people, however, might want to include someone other than a spouse as a tenant and still avoid probate. For those cases, there is something simply called joint tenancy with rights of survivorship. It’s the next closest legal contract to tenancy by entireties. It’s not limited to two tenants, it can include children and siblings, and it locks in survivorship for the tenants.
“One of them cannot grant away their interest in the property to someone else in an attempt to sever another person’s right of survivorship,” said Anthony Pearson, an attorney with Rhoades, McKee, Boer, Goodrich & Titta.
“The right of survivorship can’t be broken.”
Pamela Farrer, an associate with Rhoades McKee, added that joint tenancy with a right of survivorship is often the agreement of choice for those in untraditional unions, such as gays and lesbians, who own property together.
“They can’t own it as tenancy by entireties because they’re not married, but they own it with rights of survivorship.
“So when one of them passes away, it automatically goes to the other,” she said. “And that avoids probate.”
Then there is a joint tenancy without a right of survivorship. This one may, or may not, go through probate when one of the tenants dies.
“The unique twist there is that the joint tenants technically do have rights of survivorship. But if it’s not explicitly stated, one of them can defeat those rights of survivorship,” Pearson said. “That would sever the joint tenancy.”
Pearson noted that having a tenant defeat the survivorship right is extremely rare, but it does happen. When it does, it is often the result of not specifically including survivorship in the agreement.
“It is a cautionary tale for those who might be making these kinds of dispositions on their own without having professional advice or someone looking over their shoulder,” he said.
“They may unintentionally create a situation where one of the joint tenants could defeat another person’s right of survivorship at a later date.”
But a joint tenancy without the rights of survivorship can avoid probate if the title of an asset hasn’t changed prior to the death of a tenant. And without survivorship rights, all the tenants have a say in property management, have the right to force a property sale, and can secretly transfer their share of ownership.
The fourth type of joint tenancy is tenancy in common. Here, an asset does not have to be divided equally among tenants. But when a tenant dies …
“It has to go through probate. There is no right of survivorship,” said Farrer.
“So when you pass away, your share doesn’t go to the joint holder because the joint holder has absolutely no right of survivorship. It goes to your estate.”
Farrer added that tenancy in common usually occurs when a mistake is made in drawing up the document.
But she said it can also surface when a grandparent includes grandchildren in a joint tenancy, which adds another layer of ownership to a document.
The grandchildren end up owning a share of the asset, which lessens the ownership value of the other tenants. But they do so in a tenancy-in-common agreement, without survivor rights.
Of course, other important issues are linked to joint tenancy — tax implication is just one, so it’s always wise to seek advice from a legal professional skilled in estate planning before executing any agreement.
In contrast, a pour-over will is not nearly as complicated as a joint tenancy.
In fact, Farrer said, it is a very common protective measure that is very inexpensive to write. All a pour-over will does is pour new, forgotten or unknown assets — once these are made known — into someone’s trust.
“So the trust is actually the beneficiary of the will,” said Farrer.
“It’s a very standard procedure. I always create a pour-over will when I create a trust because you never know what assets are out there or what is going to happen.”