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Joint Tenancy vs Tenants in Common

Joint Tenancy vs Tenants in Common: What you need to know for Estate Planning

When you purchase property with another person, you’ll likely have to decide how to hold the property: either as joint tenants or as tenants in common. The distinction between these two options can significantly impact estate planning, property rights, and what happens when an owner passes away. Let’s dive into the differences and why understanding them is crucial for protecting your family and future.

What is joint tenancy?

Joint tenancy is one way to own property where two or more people own the entire property equally and together. This is known as an “undivided interest” because no one owner can own a specific share of the property. Importantly for estate planning, joint tenancy comes with the right of survivorship. This means that if one of the owners passes away, their ownership in the property automatically passes to the other surviving owner(s), bypassing your Will completely.

This can be convenient in some scenarios where you want your ownership in the property to go to the other owner such as where you won a property with your spouse, but joint tenancy can cause complications in estate planning particularly in blended families. For example, if you want to leave your share of the property to your children or someone other than the surviving co-owner, joint tenancy prevents this. The property automatically passes to the surviving owner, regardless of your wishes.

If you and your spouse own a house as joint tenants and you pass away, your spouse will automatically receive your ownership in the house, regardless of what your Will says. This works well for married couples or partners who intend for the surviving person to take full ownership. However, it can complicate matters if you have other beneficiaries in mind, such as children from a previous relationship.

In a nutshell, you cannot leave a joint tenancy property in your Will. This can give some protection against family provision claim because your ownership in the property isn’t part of your deceased estate – it simply goes to the surviving owner but this can lead to unintended consequences, especially for blended families or those with complex financial arrangements.

What is tenancy in common?

Owning a property as tenants in common allows each owner to own a specific share of the property. These shares can be equal but don’t have to be equal. For instance, one owner might own 60% while another owns 40%, depending on their financial contributions. More importantly, each owner’s share can be distributed through their Will to any beneficiary they choose.

If you own property as tenants in common and you pass away, your share in the property forms part of your deceased estate and, once Probate is granted, will be gifted according to your wishes in your Will. This provides greater flexibility in estate planning and is especially useful for investment properties or families with more complex dynamics, such as blended families.

Example: If you and a sibling own a property as tenants in common and you pass away, your share will be distributed according to your Will—whether that’s to your children, your partner, or to a charity. Your sibling does not automatically inherit your share.

This option is often preferred when co-owners want to ensure their share of the property goes to specific beneficiaries, not just to other co-owners of the property.

What happens when a tenant in common dies?

When a tenant in common dies, their share of the property does not automatically go to the other owners. Instead, it becomes part of the deceased’s estate and is distributed according to their Will or, if they die without a Will, under intestacy laws. This can lead to disputes between the surviving owners and the beneficiaries, particularly if the beneficiaries aren’t keen to co-own the property with other co-owners or want to try and force a sale.

The remaining tenants in common may have a few options: they can buy out the deceased’s share from the beneficiary, agree to sell the entire property, or continue co-owning with the new owner. If there’s no agreement, going to court to divide or sell the property may be necessary which can be a long and costly process.

What are the downsides of tenancy in common?

The main downside of owning property as tenants in common is the lack of automatic right of survivorship if you want the other co-owners to own the property when you die, you have no other assets that you would require your executor to apply for Probate, and so your executor will be forced to go through the Probate process because you own a specific share in a property and there is no other way to deal with your property other than by getting a Grant of Probate. While Probate is generally a non-contentious process and very procedural, it is an extra step to take if you wouldn’t otherwise need to go through the process.  

Key differences between joint tenants and tenants-in-common

  • Right of survivorship: Joint tenants benefit from automatic transfer of ownership upon death, whereas tenants in common do not.
  • Estate planning: A joint tenancy property cannot be included in your Will, while tenants in common allows you to leave your share to whoever they wish, including giving a right of occupancy to certain loved ones.
  • Ownership division: Joint tenants don’t own specific shares in a property. Tenants in common can hold equal or unequal shares, offering flexibility.
  • Probate: With tenants in common properties, your executor will need to apply for a Grant of Probate to administer your estate when you pass away. This makes it especially important to make sure you have an updated Will otherwise intestacy laws may apply making it necessary for your loved ones to apply for a Grant of Letters of Administration necessary.

Which is better: joint tenancy or tenancy in common?

The decision between joint tenancy and tenants in common depends on your personal situation and goals. Joint tenancy offers simplicity and the automatic right of survivorship which might be ideal for couples or those who want to avoid Probate. However, it removes flexibility in estate planning and may not suit those with more complex family or financial arrangements.

Tenants in common, while more complex, offers greater control over your share of the property, allowing you to leave it to any beneficiary you choose. This flexibility can be especially beneficial for investment properties or blended families. However, it can open the door to potential disputes if you have not updated your Will with an experienced estate planning lawyer such that co-owners may have a dispute about sale.

Get your estate planning done right

Choosing between joint tenancy and tenants in common can have a significant impact on your estate planning. Joint tenancy may seem straightforward but it limits your ability to distribute your share of the property according to your wishes. Tenants in common provides more flexibility but with added responsibilities and potential for disputes.

It’s crucial to make an informed decision based on financial and legal advice  that takes into account your circumstances, future plans, and the needs of your loved ones. Consulting an experienced estate planning lawyer can help ensure your property ownership aligns with your long-term goals and provides the best outcome for your family.

Ready to protect your legacy?

Contact us today to learn more about structuring your estate planning in line with your assets, wishes and goals.

Send us an email at [email protected], give us a call on 1300 034 487 or book in a free 10 minute chat here

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