What is the difference between “joint tenants” and “tenants in common”?

Co-owners of real property (houses, apartments, etc.) and certain types of personal property (for example, bank accounts) can own such property as either joint tenants or tenants in common.

To put it simply joint tenants each own 50% of the property identically and have a right of survivorship over the property. By right of survivorship I mean that A is entitled to B’s share and vice versa, when the other passes away. Essentially, the last survivor is entitled to100% absolutely. When property is co-owned as joint tenants then the property transfers to the other immediately prior to one’s death and therefore does not form part of a co-owner’s estate when he/she passes away.

Tenants in common have defined shares and are treated as distinct and separate individual owners of the common property. Tenants in common own their respective shares of the property separately and, co-owner tenants in common are not as of right entitled to survivorship. As a result, when A passes away B is not entitled to A’s share absolutely and A’s share can be left to whomever he/she wishes.

As a result of the above, property passing to the beneficiaries of a deceased tenant in common will form part of their estate and thus be subject to estate administration and Estate Administration Tax.

In terms of estate planning, it may be advantageous to consider joint tenancy to avoid estate administration taxes and costs. Yet, joint tenancy is not always advantageous and/or appropriate.

Consider the following scenario:

• Larry owns 2 houses and has a son named Bob.
• Larry’s wife predeceased him and he has no other children or living relatives except for Bob.
• Larry has prepared a will and intends to leave all of his property, including his homes, to Bob.
• Larry has no significant other assets other than his homes.

Larry is considering transferring his homes to Bob prior to his death so that Bob will not have to pay estate administration taxes or costs associated with the administration of an estate.

In the above situation, it may not be financially advantageous for Larry to transfer the property to Bob prior to his death as depending on certain circumstances (for example, if the property does not qualify as Larry’s personal residence) then the tax consequences may be more significant if the property is transferred to Bob prior to Larry’s death as the property transfer may be subject to capital gains taxes or qualify as income.

Jointly owned property (as joint tenants) may furthermore become the subject of a creditor’s claim which may jeopardize the value of the property for the co-joint tenant owner who would otherwise not be accountable to the partner’s creditor.

With respect to bank accounts; it is important to consider that prior to adding someone’s name to your bank account as a joint tenant, the law may not consider this transfer to be a gift but rather that they are subject to a resulting trust and ought to be returned to your estate when you pass away. Now, adding someone jointly to a bank account may be beneficial. For example, to add your power of attorney to your account so that they can easily access your account to assist you with your finances. However, you must keep in mind that any remaining funds when you pass away may be subject to this resulting trust and that the individual added to your account may have to account for their dealings with your account to the beneficiaries of your estate.

It is important that prior to considering your estate planning options you consult with a lawyer and accountant so that your options can be considered and you can do what is in the best interests of your intended beneficiaries.

This article is not intended to provide legal advice or tax advice.