We often hear of a couple owning their home “jointly”, but what does that really mean, and is it always the best way for people to own property?
What are the usual alternatives for groups of people to own property?
- Two common forms: Joint ownership and Ownership-in-common
- Under joint ownership,
- Members of the ownership group hold an undivided equal interest in the entire property
- Generally owners cannot sell or transfer their interests without the agreement of all others
- At a death, continuing ownership flows to the living owners by ‘right-of-survivorship’
- Under ownership-in-common
- You could have equal or unequal ownership proportions
- Interests may be transferable as of right, though owners could agree otherwise beforehand
- At a death, the deceased’s interest falls into his/her estate to be governed by his/her Will
So why would couples prefer to use joint ownership for their homes?
- It simplifies the estate administration process because you don’t have to refer to a Will (or resort to an intestacy application), or usually be worried about a challenge from a would-be estate beneficiary
- Because it passes outside the estate, it is not subject to probate taxes, and usually it will also be outside the reach of any estate creditors
In comparison then, when might ownership-in-common be the mode of choice?
- Where business partners own rental property, they will normally want those business interests to go to their own spouses and families
- Those in second marriages may want to assure that their property remains along blood lines
- And even for first marriage spouses with substantial wealth, there may be tax planning reasons for using common ownership as part of a broader estate plan
Does this discussion only apply to real estate?
- Real estate is the most often discussed type of property, but in principle any property can be owned by more than one person, and these are the two ways that it is most often carried out
- Of course, for real estate and financial accounts, there are formal records of ownership, but for other properties you need to be careful how you keep your own records so you can prove the arrangement in future if called to do so