Joint Tenancy Ownership of Real Property

Joint tenancy is a very common way to hold title to real property. This form of title is often the default for married couples. Many people often view it as cheap and simple “estate planning,” not that I recommend this. However, there are potential downsides and consequences that property owners need to be aware of when deciding to hold property in joint tenancy.

What is joint tenancy?

Joint tenancy is a form of ownership between two or more people where each person owns an undivided interest in the property and each tenant’s interest passes to the other joint tenant upon death.

Survivorship -- The last characteristic of joint tenancy where the property interest of one joint tenant passes to the surviving joint tenant upon death is known as survivorship. This survivorship happens automatically, by operation of law, upon the death of the joint tenant.

This feature can be a powerful tool for estate planning, but it can have unintended consequences if not planned.

Undivided Interest -- The first characteristic is less understood by non-lawyers. Joint tenants are said to hold an undivided interest in the property. First, this means that there are no delineated percentage interests for each owner. Indeed, each owner is legally an owner of the whole property. Second, this means that each owner has a current vested right to use the entire property.

Creating Joint Tenancy

The creation of joint tenancy is governed by CA Civ. Code §683, provides multiple methods of creating a joint tenancy. The key to each method is that there must be a written document, typically a deed but a will may also be used, where the title must be expressly stated to be a joint tenancy. The intent to create a joint tenancy should be expressed by including language such as “as joint tenants” or “as joint tenants with the right of survivorship.”

Terminating a Joint Tenancy

Similar to its creation, joint tenancy may be terminated by a written instrument. However, unlike like its creation, joint tenancy may be severed by only one joint tenant. Severing joint tenancy may be accomplished by the two methods described in CA Civ. Code §683.2: 1) execution of a deed that conveys legal title of the severing tenant's interest to a third party; and 2) execution of a written instrument that evidences the intent to sever the joint tenancy. Typically this would be done with a deed from the severing joint tenant to himself/herself, which recites the intent to sever the joint tenancy.

Unintended consequences

The features of joint tenancy can make it an attractive tool in certain situations. However, it can also have unintended consequences.

1) Transfer at death is automatic at death. This is a great feature for a married couple to easily transfer their residence to the other upon the death of one spouse. However, it is probably not appropriate for two unmarried individuals buying an investment property. The transfer of death feature must be accounted for.

2) Unilateral Termination. A joint tenancy may be terminated unilaterally by a joint tenant. This unilateral act can, for the most part, happen without the other joint tenant’s knowledge. This can substantially frustrate the other joint tenant’s intentions for the succession of the property.

3) Transfer to a Third Party. A joint tenant is free to transfer their interest in a property to a third party, without the consent or notice to the other joint tenants. This can have several consequences. First, the joint tenancy is broken (see 2) and Second, a third-party owner may be added to the property without the consent of the others leaving the owners as tenants in common with a person that they didn’t intend to be in business with.

4) Property and Gift Tax Considerations. Individuals considering joint tenancy as easy estate planning, need to consider the potential tax consequences of this option. Adding a child to title as a joint tenant on your house creates a transfer of the real property. First, in CA whenever there is a transfer of real property, absent an applicable exclusion, the property will be reassessed to current fair market value. This can cause a substantial increase in current property taxes for an individual that has held the property for a long time. Second, the transfer to a child creates an immediate gift of property and will be considered a gift for state and federal tax purposes. These potential tax issues warrant discussion with a tax professional before making this transfer.

As you can see there using joint tenancy has consequences that must be considered before adopting it as your chosen method of holding title. It's a very powerful tool for real property ownership and succession but it must be used as part of a larger plan.

If you have questions about real property ownership, please contact a qualified real property attorney to discuss your situation.