CFP

Property Titling And Transfer - Tenancy

Joint Tenancy with Right of Survivorship
Joint tenancy with right of survivorship (JTWROS) is the most common type of joint ownership and can be owned by spouses or non-spouses. JTWROS is defined when two or more individuals own an equal share in a property. In the event of the death of one of the owners, the remaining owner(s) have "survivorship" rights to the remaining property. This means the decedent's heirs do not receive the property and because of the titling, bypasses the probate process.

Whether the ownership share is included in the decedent's gross estate depends on whether: a) it was owned JTWROS with a spouse, or b) it was owned JTWROS with a non-spouse. If the asset is titled JTWROS or tenancy by the entirety with a spouse, then only 50% of the value will be included in the decedent's gross estate. If the asset is titled JTWROS with a non-spouse, then 100% of the value is included in the decedent's gross estate. However, if it can be proven that the other owner(s) actually contributed to the purchase of the property, then only the percentage contributed is included in decedent's gross estate.

Example: Tom, Dick and Harry bought a condo and each contributed 33% of the purchase price and titled the property JTWROS (each owning one-third of the property). Tom is hit by a passing train and does not make it. Because they each owned an equal share JTWROS, the remaining survivors Dick and Harry now own 50% each and Tom's share did not pass through probate and only one-third of the fair market value (FMV) of the condo is included in Tom's gross estate.

If the spouse is not a U.S. citizen, then jointly-held property between spouses is not considered one-half owned (ownership is based on consideration).

Tenancy by the Entirety
A special type of joint tenancy with right of survivorship that is recognized between married couples in some states is called tenants by the entirety (TBE). TBE can be held only by married persons and gives the right to survivorship (like JTWROS), but is limited to the couple's real property.

The key benefit to this ownership type is protection from creditors. A creditor can't look to the property for payment on a debt unless both spouses agree to it. An example can be as seen in situations where one spouse may try to borrow without his or her spouse's knowledge. Upon the death of one of the spouses, the deceased spouse's interest in the property passes to the surviving spouse (right of survivorship).

Hint: TBE will most likely never be the correct answer on the exam.

Tenancy in Common
The alternative to joint tenancy is tenancy in common (TIC). This type of ownership refers to a form of undivided ownership where two or more persons own property without the right of survivorship. Each owner owns a fractional share, and each owner has the ability to sell their ownership without the other party's approval. Unlike JTWROS, the asset will not automatically pass to the surviving account owner(s) upon the first owner's death. The asset will pass according to provisions made in the decedent's will or the law on intestate succession if there is no will. This also means that property you hold as TIC is subject to the probate process.

The amount included in the decedent's gross estate is that of the fractional share owned. If Jerry and Billy bought a piece of property for $100,000 and titled it tenants in common with Jerry contributing $30,000 and Billy contributing $70,000. Jerry's ownership is 30% and if Jerry passes away unexpectedly, Jerry's estate will include 30% of the FMV of the property and his ownership will pass to his heirs through his will.

If another person is added as a fractional owner without contributing a fair consideration, this may be considered a gift subject to gift tax. In 2010 and 2011, you may be able to exclude gifts up to $13,000 per person.



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