Much of my practice is working with clients to create plans that will ensure their estates are distributed according to their desires in the most effective way possible. This often leads to a discussion about how title is held to various assets and how that affects the overall plan.
Joint Tenancy with Rights of Survivorship (JTROS)
One of the most basic ways of holding title to real property, JTROS results in all “tenants” owning the same interest in the property (two owners = 50/50; three owners = thirds, etc.). When one “tenant” dies, their interest in the property disappears by “operation of law” and the remaining “tenants” own the property in equal shares. There is no testamentary disposition of one’s interest in the property because at the moment of death that interest vanishes. It is my long-held position that neither Trusts nor couples (as a unit) can be “joint tenants” (although I have seen deeds attempting this). JTROS do not avoid probate – they simply delay probate until the last “tenant’s” death, at which time the entire property is subject to that decedent’s estate plan, or lack thereof.
Bank or investment accounts with joint owners are technically joint tenancy accounts and addressed in the same way.
Tenancy in Common (TinC)
By contrast, TinC is not limited to individual owners, with each “tenant’s” interest in the property different (two owners may = 60/40). Each “tenant” may transfer their ownership interest during life or at death. Trusts and couples (as a unit) may act as a single “tenant.” TinC will not avoid probate (unless that interest is in one’s Trust) because a passable interest exists at death.
Tenancy by the Entirety (TbyE)
TbyE is recognized by 26 states, including Oregon, and works similarly to JTROS, but is reserved for married couples. Asset protection advantages may exist by treating the TbyE as separate entity; however, a tax specialist should be consulted to fully understand how this works. As with JTROS, TbyE only delays probate until the death of the surviving spouse and may not ultimately be an effective estate planning tool.
Community Property (CP)
CP, another way for married couples to hold real property, is recognized by 10 states, including California and Washington. In community property states, assets are considered part of the marital unit and when one spouse dies, the remaining spouse automatically owns the entire property. No asset protection exists; however, there may be tax benefits to the ultimate beneficiaries. As with JTROS and TbyE, this will delay, but not avoid, probate.
When a Trust owns property, disposition of that property is controlled by the Trust and probate is avoided. Ownership by a Trust should not affect any benefits afforded to married couples, assuming the Trust includes the appropriate language.
Know how you hold title and what that means. Understanding the basics of real property titles and working with an attorney well-versed in the options can go far in ensuring one’s property is protected best for each specific scenario.
NOTE: For current tax or legal advice, consult with an accountant or attorney. The information contained in this article is not tax or legal advice and is not a substitute for either.