If you've ever bought a house or looked into doing some estate planning, you may have heard the phrase "joint tenancy". In this post, I'll cover what it means, why it matters and how it may affect you legally.
What is Joint Tenancy?
To begin, let's clear up some confusion with the phrase itself. Although it refers to "tenancy", it's not talking about renting property. To the contrary, it actually refers to a way of owning property. In Iowa, there are two main ways for co-owners to take title to property: (1) Tenancy in Common, or (2) Joint Tenancy. Unless you take special action and use special language when you acquire property, the default form of ownership is Tenancy in Common.
Let's start with Joint Tenancy so we can see what makes it special. The main distinguishing feature is that Joint Tenancy has a "Right of Survivorship", meaning that when one Joint Tenant dies, the ownership of the property immediately passes to the surviving Joint Tenants - and NOT into the deceased person's estate. This can be very helpful in some cases but perhaps the opposite of what is desired in others. Because of this right of survivorship, you will often see Joint Tenancy referred to by its longer name "joint tenancy with right of survivorship" or abbreviated as "JTWROS".
In a Joint Tenancy, each owner has an undivided ownership interest in the overall property, and those interests must be the same. So if there are three owners holding title to a property as joint tenants, each must own an undivided 1/3 interest in the property.
What does "undivided interest" mean? It means that all owners have a fractional share of ownership in the total overall property, and not that John owns the south 1/3, Mary the middle 1/3 and Paul the top 1/3 for example. As a practical matter, that means if John wants to sell his 1/3 interest, he cannot divide off a parcel of the property and sell it - he must either get his co-owners to sell along with him, or he must sell his undivided 1/3 interest in the overall property.
Ok, so what is Tenancy in Common?
Tenancy in Common, sometimes abbreviated as "TIC", is the other way for two or more people to hold title to property in Iowa. The first main difference is there is no right of survivorship. This means that if one co-owner dies, their interest does not go to the surviving owners but instead goes into their estate and is distributed to their heirs by the terms of their will (if they have one).
The other main difference is that unlike joint tenancy, the ownership interests do not need to be equal. In a TIC, John can own 50%, Mary 30% and Paul 20%. But just like in joint tenancy, those are "undivided ownership interests" in the entire parcel. So again, John would not own a particular 50% of the property, but instead an undivided 50% across the entire property. As with our other example, if John wants to sell his ownership interest, he cannot divide off 50% of the property - he must either get his co-owners to sell along with him, or he must sell his undivided 50% interest in the overall property.
Which one do I want? Which is best?
There is no one size fits all when it comes to selecting JTWROS or TIC ownership. It depends on your particular facts and your particular goals. It is good to consult with an attorney to see which best fits your particular situation.
For example, take the familiar situation where a husband and wife own their home together. They very commonly want to own the property as Joint Tenants so that when one dies their ownership interest automatically passes to the other. That can provide for some probate time and expense savings. There will still be a few filings you will need to make, and your attorney can assist you with those, but they will be less than if the property passes through probate. In fact, joint tenancy was so commonly preferred for married couples that in 2014 the Iowa legislature updated the Iowa Code to provide that if the deed indicated the owners were married at the time they took title, then they would by default own as Joint Tenants and not Tenants in Common. One note however -- the law is forward looking only and only applies to deeds filed on or after January 1, 2015.
In a different example, say three college students purchase a house together to live in during college and to keep as a rental property after they graduate. They would most likely prefer Tenants in Common so that if one were to die, their interest would not go to the other two friends but instead into their estate and then to their heirs. Tenancy in Common would also work well for them if they each put up different investments and wanted to own different percentages (setting up an LLC would also be a great option, and we will cover that in a future post). Tenancy in Common typically works well for owners who are unrelated or who may be related but are not necessarily each others natural heirs (brother/sister for example).
As you can see from these examples, making the right decision can have a big impact on your assets and the assets passed to your heirs. For example, say your will provides that your ownership in a piece of property is to be given to your nephew, however, you own that property as Joint Tenants with your spouse. Even though you expressed your intent in your will to pass that to your nephew, it will not happen because immediately upon your death, the ownership passes to your spouse and it never enters your estate.
Also, remember that it takes special language to create a Joint Tenancy. In Iowa, that language includes "joint tenancy", "as joint tenants", "or their survivor" or an indication that the parties were married when they took title. I often see people assume they own property in Joint Tenancy and even say as much only to find out later they were missing the magic language.
I've heard of Tenancy by the Entirety too, what's that?
Tenancy by the Entirety is a third form of co-ownership of property, but it is not recognized in Iowa. In other states where it is recognized, it is very similar to Joint Tenancy and typically applies only to married couples. In those states, it usually carries special protections for one spouse against creditors of the other spouse.
How do I change my ownership?
After reading this post, you may discover you own property as Tenants in Common and want to switch it to Joint Tenancy -- or vice-versa. The good news is that as long as all owners are still alive and willing and able to cooperate, it is an easy and relatively inexpensive thing to do. The process typically involves filing a Quit Claim Deed
How can we help?
If you're looking for any assistance in this area, you can reach me at 515-222-1700 or email me through the Contact Me form on this Blog or find me at my law firm, Hubbard Law Firm, P.C.
We are happy to review any documents you may have, answer questions and/or assist you with retitling property if needed.