Tenants in Common Disadvantages A tenant in common has the right to sell their share of the property to anyone. There are numerous cases about this problem, with each jurisdiction having different solutions and holdings, but suffice to state that it can lead to very unfair results which are often unintentional on the part of the parties. When one joint owner (called a joint tenant, though it has nothingto do with renting) dies, the surviving owners automatically get thedeceased owner's share of the joint tenancy property. No Attorney Fees Incurred for Probating the Property. Tenancy in Common is ownership of title to property by two or more persons or entities in any percentage amount. This automatic transferto the survivors is called the "right of survivorship." Danger #7:  Financial problems. If you had owned the property with your spouse as joint tenancy instead of community property, you just wasted fifteen thousand dollars. First the co ownership must be equal, e.g. It can be done and one does get there: but without the many advantages later developments have made available. I get a stepped up basis in the entire value even though I owned one half of the property. "As Is" in a Real Estate Contract: What Does It Really Mean? The main disadvantage of a joint tenancy is that one tenant can burden the property independently of the other joint tenants. Apparent Simplicity. That means the taxes in the example above would be fifteen thousand dollars. Danger #6:  Right to sell or encumber. Tax Disadvantages There are several tax problems with joint tenancy, especially when compared to community property holding, but one example should suffice to indicate the complications and costs that this “simple” method of ownership can create. However, upon death there is a stepped up basis to value of date of death. Yes, but only for one half since I already owned one half as a joint tenant. As his wife later said to the writer, “What would have happened if we hadn’t been lucky enough to find out that night?”, “Simple,” I told her, “you would have paid an additional two hundred thousand dollars in taxes for no reason whatsoever.”, Because banks, title companies, realtors, and inexperienced professionals have used it over the decades and have not bothered to really think it out. Another disadvantage of joint tenancy can appear in the handling of the asset upon the death of one or more of the joint tenants. This is actually a form of joint tenancy specifically conceptualized for married couples. One pays income tax … The initial cost is the “basis” of the property and one pays taxes on the difference between sales price and basis. The exact steps depend on the type of property, but generally allthe new owner has to do is fill out a straight… However, transferring property to yourself and another person in joint tenancy can also create significant problems. One pays income tax (capital gains) on appreciation on property. But in reality most property in this area is worth far, far more than three hundred thousand, and the losses are normally in the hundreds of thousands due to this common error. Danger #2:  Probate when both owners die together. Many couples have joint bank accounts and jointly-held primary residence. Unfortunately, many individuals enter into joint tenancy property ownership arrangements because of these factors without a consideration of the tax consequences and disadvantages associated therewith. Now, if I owned that property as community property and my wife died. In a joint tenancy, each joint tenant is usually provided with the “right of survivorship”. The wise property owner should shop the other available ways to hold property before “buying” joint tenancy. This article shall discuss the basic law of joint tenancy and analyze both the benefits and the detriments of holding property in this manner. The reader is invited to first review the article Real Estate Ownership and Transactions in the United States which discusses generally the methods of owning and buying and selling real estate in this country. Tax Disadvantages There are several tax problems with joint tenancy, especially when compared to community property holding, but one example should suffice to indicate the complications and costs that this “simple” method of ownership can create. This can be a costly mistake. Assume I own the property in joint tenancy with you. One disadvantage of joint tenancy is that there is a higher level or responsibility associated with this type of ownership. As you might already know, a special feature of joint tenancy is the presence of four unities. The first $14,000 doesn’t count but the law requires that she file a gift tax return. Before the advent of revocable living trusts (See our article on Wills and Trusts) joint tenancy seemed an excellent method of avoiding what often amounted to thousands of dollars in probate fees paid to executors and attorneys. 2. So joint tenancy doesn’t avoid probate; it simply delays it. Joint tenants vs tenants in common – pros and cons . You stil… For example, you may decide that the property is owned equally, or one owner may have a 70% interest in the property while the other has a 30% interest. However, unless you specify otherwise when you are purchasing the property, the law assumes that your purchase is a joint tenancy. Exposure to Creditors In some cases, one of the joint tenant’s creditors can force a sale of the property, leaving the other joint tenants exposed to such risks even if they did not benefit from the debt of the other joint tenant. There is no need to probate the estate or perform other court hearings to achieve the transfer to the other joint tenants upon death. The key characteristic of a joint tenancy is that you will own the property equally with whoever you are buying it with. Second, unlike tenancy in common, when one dies owning property as a joint tenant, one’s portion immediately and automatically is transferred to the other joint tenants by operation of law. Joint tenancy is not altered by will or contract. If a married couple wanted to include their 18 year old child in the joint tenancy of their house, each person would own an equal share of one third. The dangers of joint tenancy include the following: Danger #1:  Only delays probate. Joint tenants are required to pay their proportionate share of taxes, mortgage payments and all other fees or expenses associated with the property. 2. 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