Avoid Probate No. 3 – Joint Tenancy Part A
- Explaining the most common type of joint tenancy, which is the way most spouses co-own property, which I label Shared Ownership with Survivorship
- Cautioning against an estate plan where everything goes to the surviving spouse if there’s blended family
Legal fights over estates are horrifically expensive and can tear families apart. This is the third in a series of columns explaining how to eliminate these fights by eliminating the estate.
I discussed the most obvious ways in the first two, i.e. by spending it or giving it away before you die.
There are also options for leaving nothing of an estate while passing wealth to your beneficiaries.
This week I start a three-column miniseries about joint tenancy.
There are three types of Joint Tenancy. I’ll start with the type most of you will be familiar with – in the context of a typical family home.
When purchasing a home together, a couple’s lawyer or notary will ask whether they want ownership to be “joint tenancy” or “tenancy in common”.
With tenancy in common, each owner’s 50% share becomes part of their estate on their death and passes to beneficiaries according to their will.
On the other hand, when a “joint tenancy” owner dies, their ownership interest is extinguished. It just stops. They no longer have an interest in the property so it doesn’t form part of their estate.
The surviving owner is left owning the entire property.
This right of the surviving owner, to own the entire property after the other joint owner dies, is called a “right of survivorship”.
The right of survivorship has been referred to by judges as the “ultimate gamble” because the person who will end up as sole owner of the entire property is ultimately determined by the gamble of which owner will live longer.
If you’re unsure about how you and your spouse share title, have a look. If it’s joint tenancy, your name and your spouse’s name will be listed followed by the words: “as joint tenants”. With tenancy in common, each owner’s share is indicated after their name, for example: “as to an undivided ½ interest”.
With this kind of joint tenancy, which has been referred to as a “true” joint tenancy, each joint owner has the same rights to the property. In legal circles, we say that each has a “beneficial interest” in the property.
I don’t like using “true” to describe this first type of joint tenancy. It’s not helpful to describe what’s actually going on. I’ll use this label for it: “Shared Ownership with Survivorship” because:
- Ownership is truly shared. Each owner has the same beneficial interest in the property, and
- Each owner has the right of survivorship.
Shared Ownership with Survivorship is an excellent estate planning tool for couples whose wish is for the other of them to own all their combined wealth when the first of them dies.
With real estate, vehicles, bank accounts and investments owned as Shared Ownership with Survivorship, the deceased’s ownership is extinguished on their death leaving the surviving spouse with full ownership.
Those assets do not form part of the deceased’s estate. If there are no other assets, there will be no estate at all to be fought over and no probate fees to be paid.
Cautions:
- I strongly recommend against an estate plan that has all combined wealth going to the surviving spouse if there’s a blended family. Reach out to me for a series of columns where I explain this.
- This type of joint tenancy is not a suitable estate plan unless each owner has the same beneficial interest, which is not the case when a parent adds a child to title.
Tune in next week, when I describe the other two types of joint tenancy which are more suitable for passing wealth from a parent to children.
