How Should Multiple Owners Hold Title? Joint Tenancy, Tenants in Common, Tenancy by the Entirety, and Community Property

When real estate is transferred to more than one person, the deed must do more than identify the new owners. It should also identify how those owners will hold title.

This is sometimes called vesting.

The form of ownership can determine:

• What happens when one owner dies

• Whether the surviving owner automatically receives the deceased owner's interest

• Whether an owner can leave his or her share to someone else

• Whether ownership percentages can be unequal

• Whether one owner can transfer an interest without the other owner's consent

• Whether certain creditor protections may apply

• How the property fits into each owner's estate plan

The most common choices are joint tenancy with right of survivorship, tenancy in common, tenancy by the entirety, and, in certain states, community property.

There is no single form of ownership that is best for everyone. The right choice depends on the owners' relationship, estate-planning objectives, state law, and sometimes tax and creditor considerations.

Why the Wording on the Deed Matters

Suppose a deed transfers a house to:

Michael Brown and Susan Brown

That identifies the owners, but it may not clearly state what happens when either owner dies.

Compare that with:

Michael Brown and Susan Brown, as joint tenants with right of survivorship

or:

Michael Brown and Susan Brown, as tenants in common

Those phrases can produce very different results.

State law determines what ownership is created when the deed does not clearly specify the form of ownership. Do not assume that simply placing two names on a deed automatically creates survivorship rights.

Option 1: Joint Tenancy With Right of Survivorship

A joint tenancy with right of survivorship, often abbreviated JTWROS, allows two or more people to own property together with a right of survivorship.

When one joint tenant dies, that owner's interest generally passes automatically to the surviving joint tenant or tenants rather than passing under the deceased owner's will.

Cornell's Legal Information Institute describes joint tenancy as shared ownership in which each owner has an undivided interest and the surviving owners absorb the deceased owner's interest.

Example

Suppose David and Emily own a home:

David Miller and Emily Miller, as joint tenants with right of survivorship

If David dies first, Emily generally becomes the owner of David's interest by operation of the joint tenancy.

David generally cannot use his will to leave that interest to someone else because the survivorship feature controls what happens at his death.

Why People Choose Joint Tenancy

Joint tenancy can be useful when the owners want:

• The survivor to receive the property automatically

• To avoid probate of the deceased owner's interest

• A relatively simple survivorship arrangement

• Equal ownership among the joint tenants

It is commonly used by spouses, family members, and other owners who intentionally want the surviving owner or owners to receive the property.

Important Limitations

Joint tenancy is not appropriate merely because the owners want to own property together.

The survivorship provision means that an owner's interest generally does not pass to that owner's heirs or beneficiaries at death.

For example, suppose a father and adult son own property as joint tenants. The father has a will leaving all of his property equally to his three children.

If the father dies first, his interest in the jointly owned property may pass entirely to the son who is already on the deed—not equally to all three children.

That may be exactly what the father intended. Or it may be an unintended result.

A joint tenancy can also be severed under circumstances determined by state law, potentially changing the ownership relationship.

Option 2: Tenants in Common

Tenancy in common is another common way for two or more people to own real estate together.

Unlike joint tenancy, tenancy in common generally does not include an automatic right of survivorship.

Each owner's interest belongs to that owner and can generally pass through the owner's estate plan when the owner dies.

Example

Suppose three siblings inherit investment property and hold title:

Anna Wilson, Brian Wilson, and Charles Wilson, as tenants in common

If Anna dies, her ownership interest does not automatically pass to Brian and Charles merely because they are the other owners.

Instead, Anna's interest may pass under her:

• Will

• Living trust

• Applicable intestacy law

• Other valid estate-planning arrangement

depending on how her affairs are structured.

Ownership Percentages Can Be Different

One important advantage of tenancy in common is flexibility.

Tenants in common can generally own different percentages of the property.

For example:

• Owner A — 50%

• Owner B — 30%

• Owner C — 20%

The owners still share rights in the property even though their economic ownership percentages differ.

Why People Choose Tenancy in Common

Tenancy in common may make sense when:

• Owners contributed different amounts toward the purchase

• Each owner wants to control who receives his or her share at death

• The owners are business partners or investors

• Family members want separate inheritable interests

• Survivorship is not the intended result

A Potential Complication

Because each owner's interest can pass separately, the surviving owners may eventually find themselves owning property with someone they did not originally select.

For example, two siblings might initially own a property together. When one sibling dies, that person's interest might pass to his or her children.

The surviving sibling could then become a co-owner with several nieces and nephews.

That is not necessarily a problem, but it illustrates why the form of ownership should be chosen intentionally.

Joint Tenancy vs. Tenancy in Common

The most important distinction is usually what happens when an owner dies.

A useful question is:

If one owner dies tomorrow, should that owner's interest automatically belong to the other owner—or should the deceased owner be able to leave it to someone else?

That answer often points toward either joint tenancy or tenancy in common.

Option 3: Tenancy by the Entirety

Tenancy by the entirety, sometimes abbreviated TBE, is a special form of ownership available to married couples under the laws of many states.

It resembles joint tenancy because it ordinarily includes a right of survivorship.

If one spouse dies, the surviving spouse generally becomes the sole owner of the property without the deceased spouse's interest passing through probate.

What Makes Tenancy by the Entirety Different?

Tenancy by the entirety treats the married couple differently from ordinary co-owners.

Depending on state law:

• Both spouses may have to consent to a transfer

• One spouse may be unable to transfer his or her interest independently

• The property may receive protection from certain creditors of only one spouse

• The surviving spouse generally receives the property automatically at the first spouse's death

The extent of creditor protection varies significantly by state. It should not be assumed that tenancy by the entirety provides identical protection everywhere.

Example

Suppose Mark and Jennifer own their residence:

Mark Davis and Jennifer Davis, husband and wife, as tenants by the entirety

If Mark dies first, Jennifer generally becomes the sole owner through the survivorship feature.

If Mark alone attempts to sell his interest to someone else, tenancy-by-the-entirety law may prevent him from doing so without Jennifer's participation.

Who Can Use It?

Tenancy by the entirety is generally limited to married spouses and is not available in every jurisdiction or for every type of property.

If the deed questionnaire offers tenancy by the entirety as an option, use it only when state law recognizes that ownership and the owners qualify to use it.

Option 4: Community Property

Community property is fundamentally different from joint tenancy and tenancy in common.

It arises from the marital-property laws of certain states.

The IRS currently identifies these nine states as community-property states:

• Arizona

• California

• Idaho

• Louisiana

• Nevada

• New Mexico

• Texas

• Washington

• Wisconsin

Other states have enacted elective community-property arrangements, so state-specific law should always be reviewed.

Under a community-property system, property acquired during marriage is generally subject to rules that treat spouses as sharing ownership, although many exceptions and state-specific rules apply.

For example, property acquired before marriage or received individually by gift or inheritance may remain separate property.

Community Property Does Not Always Mean Right of Survivorship

This distinction is important.

Simply labeling property community property does not necessarily mean that the surviving spouse automatically becomes the sole owner when the first spouse dies.

Some states recognize a form such as:

Community Property With Right of Survivorship

which combines community-property treatment with an automatic survivorship feature.

Ordinary community property and community property with right of survivorship should not be treated as interchangeable.

The precise terminology available depends on the state.

Community Property Can Have Important Tax Consequences

Community-property ownership can also have significant federal income-tax consequences when one spouse dies.

Under current federal tax rules, when qualifying community property is owned by spouses and one spouse dies, the basis of the entire community property asset generally adjusts to fair market value—not merely the deceased spouse's half.

That can be particularly important for appreciated real estate.

Example

Suppose spouses purchased real estate many years ago for $100,000 and it is worth $500,000 when one spouse dies.

The income-tax basis rules for qualifying community property may produce a different result from the rules applicable to some other forms of joint ownership.

Because tax consequences depend on the facts, owners should obtain tax advice before changing the character of highly appreciated property merely to obtain a particular survivorship result.

Tenancy by the Entirety vs. Community Property

These concepts are sometimes confused because both primarily concern married couples.

They are not the same.

Tenancy by the entirety is a form of title that typically includes survivorship and may include protections relating to creditors and transfers.

Community property is a broader marital-property regime that affects ownership rights and can have significant tax consequences.

In some situations, spouses may have more than one permissible way to title property. The best choice can depend on their estate plan, creditor concerns, state law, and tax considerations.

What If You Are Married but Only One Spouse Will Own the Property?

Marriage does not necessarily mean both spouses must appear on every deed.

However, state marital-property, homestead, community-property, elective-share, or spousal-signature laws can give a spouse rights in real estate even when that spouse is not named as an owner.

If a married owner intends to take title individually, state-specific requirements should be reviewed before assuming that leaving the spouse's name off the deed eliminates all spousal rights.

What If the Owners Are Not Married?

Unmarried owners generally should not select tenancy by the entirety.

Their most common choices are usually:

• Joint tenancy with right of survivorship

• Tenancy in common

The key decision is often whether the owners want survivorship.

Example: Unmarried Couple

Suppose Alex and Jordan purchase a residence together.

If they choose joint tenancy with right of survivorship, the survivor will generally receive the property when the first owner dies.

If they choose tenancy in common, each can generally leave his or her interest to someone else.

If Alex has children from a prior relationship, that distinction could substantially affect Alex's estate plan.

What If the Owners Are Parent and Child?

Adding an adult child to a deed is sometimes viewed as a simple probate-avoidance strategy, but it can have significant consequences.

The child becomes an owner now, not merely after the parent's death.

That can affect:

• Control of the property

• Creditor exposure

• Divorce issues

• Ability to sell or refinance

• Gift-tax considerations

• Capital-gain basis

• Distribution among other beneficiaries

If the real objective is simply to transfer property at death, other estate-planning tools may be more appropriate depending on the state.

What If the Owners Are Business Partners or Investors?

Tenancy in common is frequently more compatible with investment ownership because different owners can hold different percentages and each ownership interest can generally be transferred or inherited separately.

But the deed should not be the only document governing the relationship.

Co-owners may also need a written agreement addressing:

• Who pays expenses

• Who manages the property

• Repairs and improvements

• Rental income

• Sale decisions

• Refinancing

• Buyout rights

• Death or disability of an owner

• Disputes

• Partition

Both joint tenants and tenants in common may have rights to seek partition of property under applicable law, which can result in physical division or a court-ordered sale when owners cannot agree.

Do Not Choose Vesting Based Only on Avoiding Probate

Avoiding probate is important, but it should not be the only consideration.

Joint tenancy may avoid probate at the first owner's death, but it may also prevent that owner from leaving the property to children or other beneficiaries.

Tenancy in common preserves each owner's separate inheritance rights, but probate may be necessary unless the ownership interest is held in a trust or transferred through another probate-avoidance method.

Tenancy by the entirety may provide survivorship and other state-law benefits, but it is limited to qualifying spouses.

Community property may provide valuable tax treatment, but its inheritance and survivorship rules depend heavily on state law.

The objective is not simply:

Which choice avoids probate?

A better question is:

Which form of ownership produces the result we actually want?

Questions to Ask Before Selecting Grantee Vesting

Before completing the vesting section of a deed, consider:

1. Should the surviving owner automatically receive the property?

If yes, a form of ownership with a right of survivorship may be appropriate.

2. Should each owner be able to leave his or her share to someone else?

If yes, tenancy in common may be more appropriate.

3. Should the owners have equal or unequal interests?

If the owners need different ownership percentages, tenancy in common is commonly used.

4. Are the owners married?

Marriage may make tenancy by the entirety or community-property ownership available, depending on the state.

5. Is the property located in a community-property state?

If so, consider the property's existing character before changing title.

6. Is the property highly appreciated?

Changing the form or character of ownership can have tax consequences. Consider professional tax advice before changing ownership solely for estate-planning purposes.

7. Does the deed match the owners' estate plans?

A survivorship deed can override what an owner's will says about that property.

Make sure the deed, will, living trust, and beneficiary plan are working toward the same result.

Quick Comparison

The Bottom Line

How the grantees' names appear on a deed can affect far more than the deed itself.

The vesting choice can determine who owns the property after someone dies, whether the property passes through probate, whether an owner can leave an interest to someone else, and what rights each owner has while everyone is alive.

Before selecting a vesting option, identify the result you want:

• Automatic transfer to the survivor: consider an available form of survivorship ownership.

• Separate inheritable ownership interests: consider tenancy in common.

• Married couple seeking survivorship and possible state-law protections: consider tenancy by the entirety where available.

• Married couple in a community-property jurisdiction: consider the applicable community-property options and potential tax consequences.

Because property ownership rules vary significantly among states, review state-specific guidance for the state where the property is located. Seek legal or tax advice when the transfer involves blended families, unequal contributions, creditor concerns, substantial appreciation, community property, trusts, business ownership, or uncertainty about the appropriate form of title.

This article provides general educational information and is not legal advice. Laws, legal requirements, and individual circumstances vary. Consult a licensed attorney in the appropriate jurisdiction for advice about a specific situation.