Have you ever looked at a legal document and wondered what the acronym “JTWROS” or wondered what it meant to be a tenant in common with somebody else.  Each of these terms is a method of holding title to property.  You can hold title to property in a number of ways.  The ways have their own unique characteristics which governs how you may transfer or dispose of any given asset which affects your estate plan.  When purchasing property either by yourself or with other people, it is important to consider the consequences which follow from choosing one way over the other.  This article considers the three different ways title to property can be held which are joint tenancy with right of survivorship, a tenancy in common, or a tenancy by the entirety.  In addition to these three ways, a married couple may hold title to community property with a right of survivorship.

Joint Tenancy With Right of Survivorship

A joint tenant owns property with other parties.  Each party owns an equal interest in the property and has an equal right to enjoy the property.  Each joint tenant must acquire their interest in the property at the same time to establish a joint tenancy.

Each joint tenant has survivorship rights in the other joint tenant’s interest.  Survivorship rights means if one joint tenant dies, the interest of the deceased joint tenant passes to the other joint tenants.  Because assets held as joint tenants pass to the surviving co-tenants, property held through a joint tenancy cannot be devised or gifted.  The deceased joint tenant’s interest increases the interest of the surviving joint tenants proportionally.  The interest of the remaining joint tenants are increased proportionally by the decreased joint tenant’s share.  Assume A, B, and C own a piece of land as joint tenants with right of survivorship.  Each person has a 33.3 percent interest in the land.  A dies during the year.  What happens to A’s 33.3 percent interest in the land?  B and C each increase their interest in the land by 27.7 percent, so that each of them now has a 50 percent interest in the land.

Assets such as real estate, bank accounts, brokerage accounts, and other items of property may be held in joint tenancy with another person.  Joint tenancy can be a desirable way to hold ownership to property in many different circumstances although it is important to consider the effects of holding title in joint tenancy.  One reason not to hold an item of property in joint tenancy is for asset protection purposes.  For instance, assume you have a family vacation home which you wish to leave to your only son.  Your son has a history of failing to pay his debts and has creditors seeking to attach their judgments to any of his assets.  If you own the vacation home with your son as a joint tenant, then immediately upon your death he becomes the sole owner of the property at which point creditors may foreclose on the vacation home.  This result could be avoided if you had a trust hold title to the vacation home.  The trustee would then withhold distribution of the home to your son until his creditors claims have been satisfied.

People have issues with joint tenancy with bank accounts.  Often times a person will hold title to a bank account with a joint tenant, because they are unable to care for themselves and they depend on the joint tenant to use the account to pay for medical and other expenses related to their care.  However, the deceased intends that any remaining balance in the account be shared with remaining family members.  If the account was held with a joint tenant such a result could not happen.  Upon the deceased’s death, the remaining balance in the account would pass to the other joint tenant rather than shared between the family members.

Community Property With Right of Survivorship

Community property is property owned by a husband or wife acquired during the marriage and which was not acquired by gift, devise, or descent.  The general rule regarding community property as opposed to separate property is that community property is shared between the husband and wife.  For example, assume wife is the sole bread winner in the family.  Wife earns $100,000 in wages during the year.  The $100,000 in wages is considered community property and split between wife and husband.   Each spouse is entitled to 50% of the community assets with the ability to control the distribution of their share of community assets upon their death.  Therefore, if Husband dies and the estate contains $100,000 of community property, husband’s share of the community property would be $50,000, and he may dispose of the $50,000 however he pleases.

The issue becomes what is community property with right of survivorship?  Arizona allows a husband and wife to own title to property as community property with the right of survivorship.  As stated above, the right of survivorship allows assets to pass outside of the probate estate.  If community property with right of survivorship is owned in this manner, then the husband’s interest in the above scenario would not be included in his probate estate.  Rather, it would be distributed to the wife as the sole survivor of the property.  She could then dispose of the property as she pleases.

Owning community property with right of survivorship with your spouse can be pretty useful.  It allows you to pass assets outside of the probate estate and put them directly into the hands of your spouse without the delay in time that usually accompanies probate.  Further, it has favorable estate tax consequences because the property gets a stepped up basis for estate tax purposes.  A stepped up basis will reduce the amount of estate tax owed when the surviving spouse passes away.

Tenants In Common

A tenancy in common is similar to joint tenancy except for a couple of differences.  The major difference is that there is no right of survivorship.  A co-tenants interest may be given away when they die.  Co-tenants can give their interest away in a will.  Another difference is that a co-tenants may have disproportionate interests; whereas, in a joint tenancy each joint tenants interest must be equal to each other.  However, each co-tenant still has an equal right to use and enjoy the property regardless of their percentage interest.  The interest of a co-tenant would be an asset that is included in the probate estate.  You may devise or gift your interest either during life or after death.

A number of assets could be held as tenants in common.  Stocks, bonds, bank accounts, and real estates are a few examples.

One reason a person might prefer to hold title with another as a tenant is common is to do away with the survivorship option of a joint tenancy.  Ownership through a tenancy in common allows the interest holder to control the disposition of their interest.  It is important to consider the consequences of tenancy in common relationships.  Each tenant in common has equal right to use the property as state above.  Therefore, if a husband and wife leave their family vacation home to their children as tenants in common, each child could use the home as they please.  Any child’s interest would be subject to the claims of creditors raising the possibility of an unintended creditor as an owner.  Another problem can exist if the children do not get along with each other.  Family fights will break out over use of the property.  Therefore, a trust may be a better option than allowing the children to own the property as tenants in common.

Tenancy By The Entirety

This form of holding title may only exist between husband and wife and is similar to joint tenancy.  Under a tenancy by the entirety, the husband and wife have concurrent ownership in an asset, and on the death of one spouse the other spouse takes sole title to the property.  A key distinction between a tenancy by the entirety and joint tenancy or tenancy in common is that either spouse cannot dispose of their interest without the consent of the other spouse.  Tenancy by the entirety is not recognized in all states.