If you co-own a house with someone, what happens to that jointly owned house upon your death? Will the property go through the probate process? The short answer is that some types of jointly held property (property owned by two or more people) must go through probate, but other types don’t.
Why does it matter if the property goes through probate anyway? Probate is the procedure of settling the estate of a person who has died. It is usually time consuming and expensive, so many people take pains when estate planning to keep their property out of probate when they die. Some types of joint ownership can help with this, and others can’t.
Tenancy in Common: Probate Required
A tenancy in common is a simple and flexible form of joint ownership, but it does require probate when an owner dies. If you co-own property with someone else as "tenants in common," you can sell your share of the property independently, and you can also leave just your share to someone at death. You and your co-owner need not own the property in equal shares.
In other words, if you jointly own your house with someone as tenants in common, and leave your share of the house to someone in your will, upon your death that house will pass to your inheritors through probate.
Example: Connie and Greta, sisters, inherited their parents' home; they each own half of the home as tenants in common. Connie leaves her half of the home to her son in her will, and Greta leaves her half to her daughter. Greta dies first. Greta's half of the home goes through probate, and Connie will co-own the home with Greta's daughter.
Joint Tenancy: No Probate Required
Joint tenancy—sometimes called “joint tenancy with right of survivorship”—is a useful form of co-ownership for people who want the property to pass to the other owner without probate. While it works to avoid probate, it can be restrictive and can cause tax complications in some situations.
How does owning property jointly avoid probate? Under joint tenancy, two or more people own a property together in equal shares. Joint tenants cannot sell or pass on their own share of the property without breaking the joint tenancy. (They can choose to sell the property together, though.) Joint tenancy usually comes with a "right of survivorship," which means that if one co-owner dies, that person's share automatically passes to the other co-owner or co-owners.
However, when that last co-owner dies, the property will go through probate unless that owner took some other probate-avoiding measure.
Example: Uma and Pamela own an apartment together as joint tenants. When Pamela dies, her half of the apartment automatically passes to Uma without going through probate. Uma now owns the entire apartment. When Uma dies, the property goes through probate as it passes to Uma's inheritors.
Can You Inherit Joint Tenancy Property?
Sometimes people ask if joint tenancy property is inheritable. This is a separate question from whether the property goes through probate, but it's related. What they mean is: What happens if you co-own real estate with someone as joint tenants with right of survivorship, but leave that property to someone else in your will? It all depends on who dies first.
Let's take the example of Esther and Adam, both previously married and divorced, and both with adult children from their previous marriages. Esther and Adam get married and buy a home together as joint tenants with right of survivorship. In her will, Esther leaves the home to her son, while Adam leaves the home to his three children in his will.
If Esther dies first, the entire home will become Adam's (without probate), since he is a co-owner with the right of survivorship. Assuming he never changes his will, Adam's three children then inherit the home upon Adam's death (after it goes through probate).
However, if Adam dies first, Esther will own the entire home (without probate), and her son will inherit it at her death (after it goes through probate).
If this is not the result you intend, you can consider converting your property to a tenancy in common (see above) so that both you and your co-owner can leave your share of the property to the people you want, but find a lawyer to help.
Use Caution If Converting Property to Joint Tenancy Property
Joint tenancy is sometimes used by family members, such as spouses, parents, and children, to avoid probate. This can work well in some situations when the co-owners are certain that they want the property to pass to the other owners after death.
Use caution if you want to add a joint tenant to property you already own. There are a few drawbacks:
- Gift taxes. Adding a joint tenant can affect gift taxes because it creates a gift to the added owner.
- Tax basis. In most states, a surviving spouse who was added to a title as a joint tenant won’t receive the benefit of the property’s “stepped up basis” after the original owner dies. This means that when the property is later sold, more capital gains tax might be owed.
- Giving up sole control. Adding a joint tenant makes the new owner an equal and true owner of the property. Legally, he or she will have the same rights in and control over the property as you do. In effect, you've giving up your sole control over the property, so make doubly sure this result is what you want.
- Creditors. Because the new owner is a true owner of the property, if the new owner has money troubles, creditors may be able to assert claims on the property.
Because of these drawbacks, if your goal is to avoid probate, you might be better off adding the property to a living trust or passing it to a new owner at your death by using a transfer-on-death deed. Either of these methods will keep your property out of probate.
If you do want to create a joint tenancy, you can do so by buying the property with your co-owners as “joint tenants with right of survivorship.” Some states have specific requirements, so get help from a lawyer if you need it.
Tenancy by the Entirety: No Probate Required
A tenancy by the entirety is a special form of joint ownership available only to spouses (and in some states, domestic partners). Like joint tenancy, property owned in tenancy by the entirety comes with the right of survivorship; it passes to the surviving spouse without probate. However, under tenancy by the entirety, the spouses don’t have separate shares; they own the property together as one unit.
Marriage (or in some states, domestic partnership) is required for this form of ownership, so divorce or dissolution breaks the ownership into tenancy in common. During the marriage, neither spouse can change the ownership type unilaterally, but the spouses can decide together to change the ownership type.
In some of the states that offer it, tenancy by the entirety might be created by default whenever spouses take title to property together.
An Attorney Can Help
While some forms of joint ownership can help you avoid probate, all forms of joint ownership can have significant effects on your ownership rights, taxes, and control of the property. Before you decide to co-own property or change the method of ownership, or if you want to find out how to make sure the right people inherit the property, get advice from a good real estate or probate or estate planning attorney.