Real property ownership can have significant implications for your estate plan. Two common forms of concurrent ownership are Tenants in Common (TIC) and Joint Tenancy with Rights of Survivorship (JTWROS). Understanding the difference between these ownership structures is crucial for effective estate planning.
Tenants in Common (TIC)
Tenants in Common is a form of ownership where two or more people own property together, but each holds a separate and distinct interest in the property.
Key characteristics:
- Each owner can hold unequal shares (e.g., one person owns 70% while another owns 30%)
- Each owner can transfer their interest independently
- Ownership interests can be acquired at different times
- No automatic right of survivorship
What happens at death:
When a tenant in common dies, their ownership share does not automatically transfer to the surviving owners. Instead, it passes according to their estate plan (will or trust) or through intestate succession if they died without a will. This means the deceased owner's share must go through probate unless proper estate planning has been done.
Joint Tenancy with Rights of Survivorship (JTWROS)
Joint Tenancy with Rights of Survivorship is a form of ownership where each person owns an equal share of the property with automatic rights of survivorship.
Key characteristics:
- All owners must acquire their interests at the same time
- All owners must have equal shares
- All owners must have the same title
- Automatic right of survivorship applies
What happens at death:
When a joint tenant dies, their ownership interest automatically passes to the surviving joint tenant(s), regardless of what their will says. This transfer happens immediately at death and outside of probate, making it seem like an attractive option for avoiding probate.
Common Misconceptions and Pitfalls
Many people, especially those without legal guidance, make critical mistakes when attempting to plan their estates. A common scenario involves an elderly parent using a quitclaim deed to add an adult child to their property deed, believing this will help avoid probate or Medicaid spend-down requirements.
Why this often fails:
- Medicaid Look-Back Period: Transferring property to children within Medicaid's five-year look-back period can trigger ineligibility penalties.
- Tax Implications: Adding someone to a deed via quitclaim can create unintended gift tax consequences and eliminate valuable stepped-up basis benefits.
- Control Issues: Adding a child to a deed means giving them partial ownership and control over the property immediately, which can create complications if there are disagreements.
- Exposure to Creditors: The property becomes vulnerable to the added owner's creditors, divorces, or bankruptcies.
Making the Right Choice for Your Estate Plan
The best ownership structure depends on your specific circumstances and goals:
- If maintaining individual control over your portion of the property and passing it according to your wishes is important, tenants in common might be preferable.
- If avoiding probate is the primary concern, joint tenancy offers this benefit, but comes with less flexibility and potential unintended consequences.
However, both options may be suboptimal compared to more comprehensive estate planning tools like living trusts, which can provide probate avoidance along with greater control and protection.
Conclusion
Property ownership decisions should never be made without understanding their full implications for your estate. Professional legal guidance is essential to ensure your property transfers according to your wishes while minimizing taxes, protecting against creditors, and addressing long-term care concerns. Seemingly simple solutions like quitclaim deeds often create more problems than they solve.