In the last episode of our "How to Avoid Probate" series, we discussed how co-ownership is an effective way around the probate process.
Now let's drill down a bit, to understand the two common forms of co-ownership. They sound similar, but they are different categories, with different outcomes:
- Joint tenancy: There can be any number of co-owners in a joint tenancy. In a joint tenancy agreement, each co-owner has a right of survivorship. If one of the co-owners dies, the property goes to the surviving co-owner, allowing that asset to bypass the probate process. This is a powerful principle, stronger even than the stated wishes of the decedent in a will or trust.
- Tenancy in common: In a tenancy in common arrangement, each co-owner - and there can be any number of them - has the right to mortgage, sell or transfer his or her own interest in the property without obtaining permission from the other owners. This approach to co-ownership is more flexible and a bit more complicated. Instead of overruling stipulations in a will or in a trust, tenancy in common gives priority to directions given in a will or in a trust.
Making the right choice
Which approach more clearly avoids probate? Joint tenancy, also known as joint tenancy with right of survivorship, is often your best option. However, unless indicated otherwise, property you own is held as tenants-in-common with other co-owners. To be sure your property is really avoiding probate, then, you need to explicitly set ownership up as a joint tenancy.
Unless you understand this difference, and plan your co-ownership properly, ownership can be severed or terminated by one of the co-owners. If one-co-owner dies, the property must pass through probate.
These two types of co-ownership offer different benefits. When drawing up a co-ownership agreement, it is critical to use the framework that works for you. An experienced attorney can help.