· What is tenancy in common?
Tenancy-in-common is ownership of property between two or more people. Each of the owners owns a percentage of the property, called an undivided interest. An undivided interest means that each tenant in common owns a part of the property but there is no way to identify which part he or she owns.
All the owners of tenancy-in-common property have the right to use and possess the property during their lives, no matter what percentage each person owns. Unless some other agreement is reached, tenants in common may give away or sell their interest in the property. Typically, in dealing with their property, tenants in common are very much like sole owners.
They may also leave their interest in the property to anyone they choose at their death.
· Does tenancy in common have a right of survivorship feature?
No. Property owned by tenants in common does not automatically pass to the surviving owners. If you and your two siblings own a cabin in the mountains as tenants in common, you would have legal title to an undivided one-third of the cabin. Not only are you free to dispose of your interest in the cabin as you determine during your lifetime; you are also free to pass your interest at your death to your beneficiaries under your will or trust or by intestacy if you have no formal estate plan.
· What are some of the advantages of owning property as tenants in common?
Much like a sole owner, a tenant in common is considered to be in control of his or her share of the property. Each tenant has the freedom to give away or sell his or her interest in the property and to leave it to whomever he or she chooses at death.
Tenancy-in-common interests receive a step-up in cost basis for tax purposes. For example, if two tenants in common own a parcel of real estate and one dies, the decedent’s interest in the property will receive a step-up in basis but the surviving tenant’s interest will not.
· What are some disadvantages of owning property as tenants in common?
Property that is held by tenants in common may be subject to both living and death probates if an owner becomes disabled or dies. This can create unnecessary expenses and delays. The public nature of the probate process may also cause problems for the owner or for the person who ultimately inherits the property.
In addition, since a tenancy-in-common interest is freely transferable, an owner might, involuntarily, become a tenant in common with someone other than the original co-owner of the property. The co-tenants may not be able to agree regarding the management or sale of the property, creating legal battlefields over control issues.
· Is tenancy in common better than joint tenancy with right of survivorship?
In many respects, tenancy in common is superior to joint tenancy as a form of property ownership. Not only can you control to whom the property will pass at your death, but you can utilize estate tax planning strategies unavailable with joint tenancy property. The major pitfall with tenancy in common is that, as with individual ownership, the property may be subject to the probate process.
· When would you recommend that couples own property as tenants in common?
A married couple often will have one or two assets which are very valuable and which make up the bulk of their combined estate. They may be uncomfortable assigning sole ownership of the assets to one spouse or the other. In this situation, it may make sense because of estate tax planning considerations to have each of them own an undivided one-half of the property as tenants in common. This solution meets the need to allocate assets to each of them for estate tax purposes and allows them to continue as co-owners of the property.
For unmarried persons, holding their property as tenants in common rather than as joint tenants ensures that the property will pass to an owner’s intended heirs rather than to the remaining co-owners.
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