Joint Tenants vs. Tenants in Common: A Question of Title

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You’ve certainly done your research during this home buying process. First, you searched for an experienced loan officer who guided you through the home loan process. Next, you found an excellent real estate agent after interviewing several and found the perfect match.

The real estate agent met with you and after a conversation about where you wanted to live, your goals and price range, the agent provided you with several options. You also shopped for insurance to protect your new home. There’s a lot to consider. But have you thought about how you want to hold title? What happens to your property in the event of your passing? How you choose to hold title determines this.

Joint Tenants vs. Tenants in Common

Whoever holds title to a property is an owner and has a legal interest in the property. There are several ways to hold title but the two most common ways in California are to hold title as Joint Tenants and Tenants in Common. The other more common ways are sole ownership, community property and in a living trust.

Sole ownership, lawyers sometimes refer to this as “ownership in severalty” but the term is relatively self-explanatory. The only owner is you. If you’re married your spouse will need to sign a Quitclaim deed removing that individual’s interest in the property. When the sole owner dies, any property, including real estate holdings, are distributed according to a probate court’s decision.

Community property is another option for those who are married. Each spouse owns one-half the property and upon the passing of one of the spouses, the one-half can be transferred to the surviving spouse dictated in a will or even to a third party not married to the individual who died.

A living trust can take title to a home and upon the owner’s death the property is distributed according to the trust’s terms. Assets in a living trust are hidden from public view and are private, shielded from any lawsuits, judgments or claims.

Again, the most common ways to hold title to real estate here in California is by Joint Tenancy and Tenants in Common. Let’s look at both.

Joint Tenants vs. Tenants in Common: Joint Tenancy

In joint tenancy, there can be multiple owners but when one of them dies, the owner’s share who passed is automatically divided equally among the other owners. Typically this is how a married couple takes title in a new home. Joint tenancy is also sometimes known technically as “joint tenancy with rights of survivorship.” If a spouse dies the surviving spouse receives 100% ownership of the property. In joint tenancy there is no need for probate court as the distribution of the share is automatic. All the surviving spouse needs to do is keep a copy of the certificate of death in order to clear the title report. In order to hold title as joint tenants, all owners must take ownership and title simultaneously and each owner shares equally the held property.

Tenants in Common

When multiple parties, two or more at least, take title as tenants in common, each owner holds a specific interest in the property and is not automatically divided equally among all owners. Real estate investors often hold title in this manner as different owners may have a greater interest in the property from one another. One investor may own 30%, another 45% and a third at 25%. Specific ownership is spelled out in the deed. With tenants in common, the owners do not have to take title at the same time as joint tenancy requires. An owner can be added later or an owner can sell the interest in the property to a third party or in a will.

For instance, of these three owners, the one with a 25% legal interest can sell to someone else to acquire that 25%. Or, the owner can specify in the will her nephew will be the heir to her share. Tenancy in common also requires the property be subject to the rulings of probate.

So, how should you take title? That depends upon who is buying the property and when. If you’re a married couple most people take title as joint tenants. With joint tenancy, if one spouse dies, the share of ownership is transferred to the surviving spouse. But joint tenancy doesn’t only apply to those that are married. Four people can take title as joint tenants as long as they acquire the property at the same time and each owns 25% of the estate.

Joint Tenants law

If you’re not sure how to hold title ask your loan officer for more information or speak with your title insurance representative. Note, such advice might be taken as legal advice and there may be some reluctance to tell you how you should hold your assets, including real estate, but there is enough objective information available to help you make this decision on your own.

If you’re acquiring property at the same time and want to divide ownership equally, then joint tenancy is a likely candidate. If not, or there are those who own a greater percentage of the asset, then tenancy in common is your better choice.

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Chad Baker is Regional Manager for RPM Mortgage. Chad is consistently recognized in the top 1% of mortgage originators in the United States 2011-2015.

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