Joint Tenancy FAQ
Below are answers to the most frequently asked questions about a joint tenancy. Skip to the information you want by using the links below:
- What is joint tenancy?
- Where do I find the terms of a joint tenancy?
- What is joint tenancy with rights of survivorship?
- Can joint tenancy property pass to unintended heirs?
- Does joint tenancy ownership avoid probate?
- Can joint tenancy create unintended gift and estate taxes?
- Does joint tenancy provide a step-up in basis?
- Does joint tenancy provide a carry-over basis?
- Inherited property vs. gifts of property
- Find an attorney for answers tailored to your specific situation
Two or more people can own a home together as a "joint tenancy." This is a legal term that means each individual owns a share (or interest) of the entire property.
Joint tenants must have equal shares of the property with the same deed, at the same time, so:
- Two people have 50/50 shares
- Three people have 33/33/33 shares
- Four people have 25/25/25/25 shares
Any amount of people can equally own a home together.
The terms of a joint tenancy differ from a tenancy in common. These terms are laid out in:
- The property deed
- The property title
- Other legally binding property ownership documents
Joint Tenancy ownership is where two or more people "hold title to an asset," or own a property.
Joint tenancy with rights of survivorship is sometimes referred to as JT/WROS. This means all the owners have a legal right of survivorship.
The term "right of survivorship" means if one joint owner dies, the title passes "by operation of law" to the surviving owners. The surviving owners receive sole ownership of the asset. It is a type of ownership that is not controlled by either your will or your trust.
Joint tenancy ownership can pass property to a new spouse. It does not mean the property will pass to children when a surviving spouse remarries after the death of the first spouse.
As an example, a married couple (let's call them Ryan and Alex) owns all of their assets in joint tenancy. Alex dies, so all assets must pass by operation of law to the surviving spouse (Ryan).
There may be no rights for Alex's children if the surviving spouse (Ryan) remarries and places their assets in joint tenancy with a new spouse (Blake).
Now, if Ryan dies before Blake, all property passes to Blake, not to the children as their parents may have originally intended. So the original spouses (Alex and Ryan) could have children that end up with nothing. Blake's children could get everything.
Joint tenancy ownership often only delays the probate process.
When the first joint tenant dies, the house title passes automatically to the surviving joint tenant. This avoids the probate process on the first death.
Let's look at the example of a married couple who owns all of their assets in joint tenancy. On the death of the first spouse, there is no probate because ownership of the assets passes "by operation of law" to the surviving spouse. This is an automatic process.
Now, when the surviving spouse dies, there will be a probate. To avoid probate, the surviving spouse can create a new joint tenancy or place assets in a living trust.
You might see joint tenancy as a legal way to avoid probate or have financial assistance. However, joint tenancy is always a gift of one-half of the full value.
When a parent places a child on as a joint tenant, the child gets half the real estate, stocks, or other investments.
Parents may be unaware that they have made a gift of only one-half of the value of the property. If that value exceeds $10,000 in one year, the "gift" is a taxable gift. Now the parent must file a gift tax return.
As stated in other questions above, property "held in joint tenancy" passes to the surviving joint owner. Although the title for the property passes to the surviving joint owner, the value of the owner's interest in the property is included in their estate for federal estate tax purposes. Therefore, an owner's family may pay substantial federal estate taxes on property they do not receive.
"Basis" is generally defined as what you paid for an asset (the cost basis). If you paid $1,000 for 10 shares of stock, your basis in the stock is $1,000.
If you inherit property, your basis is the value of the property on the date of death of the previous owner.
As an example, say your parent bought 10 shares of stock for $1,000 each. The shares were valued at $10,000 on the day your parent passed away.
Now you inherit these 10 stocks, but today they are worth $2,000 per share. Your basis in the shares is $2,000, and overall it is valued at $20,000. When you inherit property, you receive a 100% "step-up in basis."
If you receive a gift of property, you receive what is called a carry-over basis. In other words, say you received 10 shares of stock as a gift. The basis of the previous owner was $10,000. Today your basis in the shares would be $10,000.
The basis "carries over" to you in a gift. This method does not care what the shares are worth at the time the gift is made.
Different rules apply for inherited and gifted property. The two examples above show the difference between inheritance and gifts.
Overall, it may be better to leave your heirs appreciated property rather than make an outright gift to them during your lifetime. With inherited property, your heirs will be able to take advantage of the step-up in basis when they proceed to sell the property.
Questions About Joint Tenancy? Talk to a Local Attorney
Joint tenancies and other forms of joint property ownership must be carefully planned. Problems and lost money can result in unexpected outcomes and the loss of important rights. If you have questions or concerns, a local real estate attorney can help set you on the right path.