A significant portion of the assets we own are held jointly with another person. Almost anything, including real property, bank accounts, and investment accounts, can be, and often is, owned jointly. Therefore, it is of utmost importance to understand the various joint tenancies and their consequences. This article will deal with the three joint ownership structures in New York and discuss their basic characteristics. As always, no planning should be undertaken without consulting a New York estate planning attorney.
Joint Tenants With Rights of Survivorship (JTWROS)
If you are married and look at your bank or investment account statements, the chances are that you and your spouse are both named owners. This simple, yet common and useful ownership structure, is known as joint tenancy with rights of survivorship (JTWROS). The reason that JTWROS is so popular is that, upon the death of one owner, their rights in the property automatically pass to the remaining owner(s). That means that jointly owned assets do not need to be probated when one party passes away and there are remaining owners. When there is only one owner living, the property will pass to the beneficiaries or distributees of the final owner. Each joint tenant has equal and undivided ownership in the property, which means all of the owners have an equal percentage. Each joint tenant can gift or sell their share of the property to a third party without the consent of the remaining joint owners. When that happens, the joint tenancy stops and becomes a tenancy in common (see below). Unlike tenancy by the entirety, described below, there is no creditor protection. Consequently, the creditor of one owner can place a lien on that owner’s portion of the property and foreclose on it, affecting all the remaining owners. The creation of JTWROS can cause significant tax and liability issues and is best done after a consultation with an attorney.
Tenancy by the Entirety (TBE)
The second form of ownership, tenancy by the entirety (TBE), is very common when a married couple owns real estate, such as their primary residence. If you were married when you bought your home, it is highly likely that you own it as TBE with your spouse. In New York, tenants by the entirety (TBE) can only to real property (and co-ops if purchsed after 1996) and can only be used by a married couple. In fact, if a married couple takes ownership of real property, they automatically own it as TBE, unless the deed indicates otherwise. Just like a JTWROS, when one spouse passes away, the property automatically passes to the other spouse without probate. Each spouse owns an undivided 100% interest in the property which, unlike the other two forms, can’t be sold or given away without the other spouse’s permission. The main advantage of a TBE over a JTWROS is that, as long as the couple is married, a creditor of one spouse can not place a lien on the real property while the non-debtor spouse is alive. If the spouse who incurred the judgment and lien passes away, the property passes automatically to the surviving spouse, and the lien is extinguished. However, if the non-debtor spouse passes away first, the creditor can place on lien on the property.
Tenancy in Common (TIC)
With a tenancy in common (TIC), each owner owns an undivided percentage in the property. Unlike the other two structures, one owner can own a greater percentage than the other(s) – one owning 99% and one owning 1%, for example. Like a joint tenancy, any owner can use the property whenever they wish, and any owner can sell their portion without the consent of the other(s). The major distinction between TIC and the other two forms is that, after the death of an owner, his share goes to his heirs, and NOT to the remaining owners. This allows owners to plan for the distribution of the asset in accordance with their will and to potentially maximize their estate tax savings in some instances. A big drawback of TIC ownership is that when one owner passes, the assets held as tenants in common will require probate or estate administration,which may delay the transfer of the property until the court process is complete. Additionally, unlike a TBE, there is no creditor protection for the owners.
While this overview may appear straightforward, the practical application is fraught with significant tax, estate, liability, and long term care implications. Before purchasing new property or transferring existing property into joint names, it is best to consult with an attorney to understand the potential pitfalls which may affect you and your loved ones.
For a consultation with an estate planning attorney, contact us at 347-766-2685.
