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Tenants in Common vs Joint Tenancy

Understanding the difference between joint tenants and tenants in common is important if you are looking at your estate planning. If a Willmaker understands the difference, then they can make a decision that best reflects their intentions.

What is the difference?

The difference relates to how each person intends to hold the property – for example, you may wish to have an equal share or different shares such as 70/30.

The difference also relates to what the parties intend to happen if any of the co-owners pass away. For example, do parties intend for the deceased’s share in the property to automatically pass to the surviving owner?

What does Tenants in Common mean?

Tenants in common allows two or more individuals to own a specific fractional interest in the property. For example, say a couple buy property as tenants in common. The couple will need to specify what interest they will have in the property. This may be 50/50, 80/20 or any other split totaling 100. Tenants in common allows people to own property in equal or unequal interest.

What is the effect of owning property as Tenants in Common?

The effect is if one of the owners dies, their share does not automatically go to the surviving co-owners but must be dealt with under the interest holder’s Will. If for example, someone owns 30% of a property and dies, their share will not automatically go to the surviving owner – it will pass in accordance with their Will.

This type of ownership is popular with owners who do not necessarily want their share to automatically go to the other owners. However, it is important to understand that if owner A passes before owner B, then owner B may then own the property with a person or people they did not initially intend to own it with.

What does Joint Tenants mean?

A joint tenancy allows two or more persons to own a property jointly and the owners can be regarded as together composing one single owner. Joint tenancy is a common structure for married and de facto couples. This is because, if one of the owners dies, their interest in the property automatically passes to the other owner. This is called the ‘right of survivorship’.

What is the effect of owning as Joint Tenants?

It is important to understand that a property owned as joint tenants is not an estate asset.

The deceased’s interest in the property passes to the surviving owner absolutely by operation of law and is outside the deceased’s assets that will be dealt with according to their Will. This means that if A and B own a property as joint tenants, and owner A passes first, owner B will receive ownership of the property absolutely. Accordingly, owner B will not have to sell the property if they do not wish to.

It is also important to understand that if you wish to leave a gift or distribution to a beneficiary and are relying on your interest in a property you own as joint tenants, unless you have sufficient other assets in your estate to satisfy this the gift or distribution, then the beneficiary may end up receiving nothing.

Is there an advantage to owning a property as Joint Tenants?

Owning property as joint tenants can be useful if the Willmaker feels that there is a risk that someone may apply to the Court for further provision from their estate, and they have specific wishes that their family home be protected. If the Willmaker passes before the other owner, the property will not form part of their estate which may be the subject of a claim for provision.

However, it is important that before you change the ownership of your property you receive advice in relation to your estate plan in general as the change of ownership may result in transfer duty and/or other taxation implications.

If you have any questions or queries regarding the meaning and effect of holding property as joint tenants or tenants in common, or if you are considering gifting a property to a beneficiary under your Will, please do not hesitate to contact us.

Duncan MacDougall

Written by—

Duncan MacDougall

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