There are four types of jointly owned property: Joint Tenancy with Right of Survivorship, Tenancy by the Entirety, Tenancy in Common and Community Property. I will give a short description of each along with some positive features and some negative considerations.
- Joint Tenancy With Right of Survivorship. This type of co-ownership can
exist between two or more people regardless of whether they are related by blood or marriage. On the death of one of the joint owners, the other co-owners immediately own the entire asset. The deceased joint owner owns nothing and nothing passes through his or her estate. As long as there are surviving joint owners the asset will automatically be owned by the surviving joint owners on the death of one of them. For this reason, property that is jointly owned with right of survivorship is not subject to probate administration except on the death of the last joint owner that was living. This result can also be avoided. This type of ownership is popular because of its apparent simplicity and because it can be used to avoid probate. Joint ownership with right of survivorship does qualify for the Federal Estate and Gift Tax Marital Deductions. Joint Tenancy does have some “pitfalls.” It can create estate tax problems in very large estates. It can also give rise to disputes between family members who own property jointly. A joint owner cannot sell property he or she owns as long as the other tenants are alive (without their consent) and this also is true if a joint owner tries to use his or her interest as collateral for a loan.
- Tenancy by the Entirety. In some ways this form of co-ownership is similar to
joint tenancy with right of survivorship. The first difference is that it is a form of ownership that can exist only between husband and wife. Since Missouri does not, at present time, recognize same-sex marriages, this form of ownership can exist only between traditional, opposite sex couples. When the first co-owner dies the surviving spouse owns the property outright. While both are alive, each spouse is deemed to own the entire property. This fact affords a good deal of protection against the creditors of only one of the spouses. This could happen in the case where, for example, one spouse is a physician who is sued for malpractice. Any assets co-owned by the physician spouse are not available to the creditors of the physician spouse to satisfy the judgment (unless, of course, those assets were placed in a tenancy by the entirety in fraud of creditors – assets transferred into tenancy within a one year period after the entry of judgment would be suspect in this regard). As mentioned, this form of ownership qualifies for the Federal Estate and Gift Tax marital deductions.
- Tenancy in Common. This type of co-ownership can exist between several
Several individuals with varying interests. In other words, the fractional interests in each co-owner do not have to be identical as in the case of joint tenancy with right of survivorship. So you can have three co-tenants in common with one of them owning a 50% interest and each of the others owning, for example, a 25% interest. The fractional interests of the co-owners simply must add up to 1 or 100%. When a tenant in common dies his or her portion does not go to the other co-tenants because there is no right of survivorship. The interest of the deceased co-owner passes to his or her heirs at law (if there is no will or trust) or to the person or persons designated in the deceased person’s will. A tenant in common cannot really sell his or her interest because the interest wouldn’t be very marketable. A tenant in common may be able to force “partition” of the various shares so that each share could be disposed of as the owner of that share wished. Tenancy in common is not a very “wieldy” way to own an asset, real or personal.
- Community Property. There are nine community property states. Missouri is
not a community property state. The community property states are: Louisiana, Texas, New Mexico, Arizona, Nevada, California, Idaho, Washington, and Wisconsin. There may be a right under Alaska law to elect community property. In community property states, each spouse owns half of the “community” which is comprised of everything acquired during the marriage including wages (but usually excluding inherited property from a non-community property state and not including assets previously owned by one of the partners in a non-community property state). On death of a community property owner, his or her share would be taxed (if large enough)under the estate tax laws but the share of the other partner would not. A spouse may dispose of his or her community property share as he or she wishes.