Joint Tenancy

What's the deal with Joint Tenancy? Part 2: Risks

In a previous post, we talked about a joint tenancy and what it is. Briefly, it’s a way of owning property in Georgia where, if one of the co-owners dies, their interest in the property automatically passes to the other co-owner.

People frequently want to use this as a shortcut in estate planning. If the main asset of an estate is a house or land, then it may seem like it’s not necessary to make a Will. Joint tenancy is automatic and protects the property from (most) claims against the estate.

But there are some significant risks, because joint tenants are both owners of the property during their lives. That means that each co-owner has the full rights and responsibilities of a property owner.

First, this means that one co-owner’s interest in the property is available to their creditors while they are alive. Suddenly, the way of protecting property from claims against the original owner’s estate after their death actually opens up the property to claims against the new co-owner while they are alive.

Example 1: Jane, a parent, creates a joint tenancy with Lucy, her child. Then Lucy has some financial difficulty and cannot pay her credit card bills. The lender is allowed to collect on Lucy’s debt from her one-half interest in the house. Now, instead of protecting the house from Jane’s debts, she has actually put the house in danger of being used to pay Lucy’s debts. Jane and Lucy could both be out of the house.

The second big risk is a possible prodigal son issue. In that story, a rich man’s son demands his inheritance now, instead of later. Similarly, as we discussed in the last post, it is possible for a joint tenant to force the sale of the property through a special lawsuit called a “partition.” In a partition, one co-owner asks the Court to order that the property be sold at auction and the money split between the former co-owners.*

Example 2: Lucy decides she does not want to own her mother’s house later, but instead needs money now to pay off some debts. She can sever the joint tenancy, file a partition action to get the house sold at auction, and then take her half of the proceeds. Unless Jane buys the house at the auction, she loses it.

Finally, a deed is permanent. Creating a joint tenancy requires the owner to convey (give or sell) a property ownership interest to another person. Once that joint tenancy is created, the interest is conveyed to the new co-owner. The original owner cannot change their mind; they cannot take it back. The new co-owner is an owner of the property, just like the original owner. The only way to get sole ownership again is for the new co-owner to convey their interest back.

Example 3: After creating a joint tenancy with her daughter Lucy, Jane later discovers that Lucy has serious credit card debt. Jane does not want Lucy to be a co-owner anymore. But Jane cannot change her mind; she cannot force Lucy to give the interest back. All Jane can do is ask Lucy to deed back her interest in the property. At that point, Jane may be unwilling to give up such a significant asset (and it may even be illegal for her to transfer the asset away.)

So, while a joint tenancy can be seen as an easy and inexpensive way to protect an asset from probate claims, it can create a new set of problems during the co-owners’ lives. Even if the potential joint tenants are on good terms now, a lot can happen in the time between the creation of the joint tenancy and the death of one of them.

The good news is that there are alternatives, which we’ll discuss in our final post in this series.

*It is also possible to ask the Court to divide the property into separate parts of equal value. This is done most often with farmland or large pieces of undeveloped property. Most of the partition cases we deal with are houses, which cannot be split.

Photo by Rowan Heuvel on Unsplash.

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The statements in this blog are generalities, and exceptions exist. And, as always, this post is not legal advice. If you have any questions about this information, please contact us.

What's the deal with Joint Tenancy? Part 1: What is it?

We occasionally receive calls from people wanting to set up a joint tenancy with right of survivorship (or “joint tenancy” for short) for their property as a form of estate planning. They’ve usually heard about this from friends or found it on the Internet as a way to avoid probate or having to make a Will.

Most of the time, once we discuss the facts of joint tenancy with them, they choose to do something else. Why? Because joint tenancy can be useful in certain situations, but there are some very definite risks.

What is a joint tenancy? It is one of two ways in Georgia for more than one person to own property together.* In joint tenancy, if one of the co-owners dies, their interest in the property automatically passes to the other co-owner. Nothing else is required; not probate, not a deed, not anything. This is the “right of survivorship;” the survivor gets the property.

The other way to co-own property is called tenancy in common (also sometimes called “co-tenancy”).** With a tenancy in common, the interest of a deceased co-owner passes to their estate, which (usually) must be probated in order to pass the interest to their heirs or beneficiaries. It is not automatic, and the other co-owner may or may not receive any part of the deceased co-owner’s interest in the property.

Today, most married couples who buy property together own the property as joint tenants with rights of survivorship. But this was not always the case. For most of Georgia’s history, joint tenancy was actually illegal. But in 1976, the Georgia legislature passed a law that allowed joint tenancy to exist and gave a set of “magic words” that are required to create a joint tenancy.***

That law also allows one (or both) of the co-owners to end the joint tenancy (called “severing”) by conveying their ownership interest to someone else.**** When severing happens, the joint tenancy is converted to a tenancy in common, and the right of survivorship goes away.

That’s what a joint tenancy is, its benefits, how it works, how it’s created, and how it can end. Now you’re ready to understand about joint tenancy’s risks and alternatives, which we’ll discuss in Part 2 and Part 3.

 

*While it’s possible for three or more people to co-own property, most of the time it’s just two.

** Some states have a third type of co-ownership, called tenancy by the entirety. Georgia does not have this, so we will not discuss it here.

***O.C.G.A. § 44-6-190. Whether a deed actually creates a joint tenancy is not always clear. If you are uncertain about whether a deed has created a joint tenancy, have a real estate attorney review the deed.

****This is a huge oversimplification, in order to avoid going deep into the weeds of property law. If you really want to know about severing joint tenancy, you’ll have to take me to lunch. And definitely check with a real estate attorney to see whether a recorded document has severed a joint tenancy.

Photo by Eduard Militaru on Unsplash .

We hope you’ve found this information helpful. If so, please like and share this post.

The statements in this blog are generalities, and exceptions exist. And, as always, this post is not legal advice. If you have any questions about this information, please contact us.