Financial Resource Center


How to Own Property: Multiple Choices

by Dianne Molvig / August 28th, 2006

Take a minute to check out what you know about property ownership. What would your answers be in each of these situations?
  • Sisters Cindy and Janet inherited the farm that's been in their family for four generations. They own it as joint tenants with rights of survivorship. Cindy has written a will in which she leaves her share of the farm to her children. When Cindy dies, will her children inherit her share of the farm?
  • Bill is single and owns a house with Scott and Tony. They own it as tenants in common. If Bill wants to sell his share, must he get his two co-owners' consent before selling?
  • Marie, age 85, has credit union checking and savings accounts for which she's named her son Andy as a joint tenant with rights of survivorship. She did this so Andy can pay her bills, buy her groceries, and transfer money from savings to checking as needed to cover her expenses. Marie's intention is that when she dies, Andy will share any remaining funds in these accounts with his sister, Joan. Must Andy split the money with Joan?
The answer to all three questions is "No." Surprised? Indeed, the form of property ownership you choose can lead to results you may not have predicted. "Which form of ownership you pick has legal consequences that affect ownership of the property now and in the future, even after your death," says Kathryn Norton, a Madison, Wis., attorney and past chair of the State Bar of Wisconsin's Real Property, Probate, and Trust Law Section.
As tenants in common, each co-owner can sell, transfer, or give away his or her share of a property without the permission of the other co-owners.

Forms of property ownership

First, let's define property. People often think of property as meaning real estate. But here we're using the term to refer to land, buildings, checking and savings accounts, investments, vehicles, and other possessions. Property ownership takes these legal forms, although not all of them are available in every state:

Sole ownership

This is a simple, straightforward form of ownership. One person owns the property and can make all decisions concerning it--as long as those decisions meet zoning restrictions and other regulations. The owner also decides who will inherit the property by preparing a will. If there is no will, a court names heirs according to state law.

Tenancy in common

In this arrangement, two or more people own the property together. They each own a share of the entire property. In the case of a tract of land, for instance, one doesn't own the west half and the other the east half. They own the whole property together, although their shares need not be equal. Each co-owner decides who will inherit his or her property share by naming beneficiaries in a will. That property share goes through probate, the court procedure for transferring ownership after death. One drawback of tenancy in common is that "You could end up being co-owner of the property with someone you never intended to be an owner with," Norton says. That's because each co-owner can sell, transfer, or give away his or her share of the property without the permission of the other co-owner(s)--unless the co-owners agree otherwise in advance.
People often incorrectly assume that putting all of their property in joint tenancy with rights of survivorship eliminates the need for a will.
In our opening example, say Bill decides to sell his share of the house to another friend his roommates don't even know. Scott and Tony would end up owning their home with a complete stranger--unless the three friends already had made some other agreement. For instance, they could draw up a "first right of purchase" agreement. Then Scott and Tony would have the first shot at buying out Bill's share.

Joint tenancy with rights of survivorship

In this arrangement, two or more people own the property and, if one dies, his or her share automatically goes to the other co-owner(s), without going through probate. Thus, this form of ownership allows an easy, quick way to pass property to surviving owner(s), but it's not available in all states. One point about joint tenancy is often misunderstood and can lead to heartbreak and family tensions. Joint tenancy with rights of survivorship trumps a will. That's why, in our opening scenarios, Cindy's children won't inherit her share of the farm. Janet becomes sole owner after Cindy's death, no matter what Cindy's will stipulates. And Andy can claim sole ownership of his mother's credit union accounts after she dies, even though she wanted Joan to get half the funds.
Not all forms of ownership are available in all states, and the details surrounding any given form of ownership vary from state to state.
How could these outcomes be avoided? If Cindy and Janet own the family farm as tenants in common, Cindy is free to bequeath her share to her children. As for Marie, she could authorize Andy as a cosigner on her accounts or grant him power of attorney. Then Andy can't claim sole ownership of the accounts after Marie's death, and Andy's sister won't get cut out of her share of the money. Another pitfall of joint tenancy with rights of survivorship is that the joint property can be reached to satisfy either co-owner's debts. Say you name an adult son as joint tenant on your credit union accounts. "If he goes bankrupt," Norton points out, "your credit union accounts are subject to his creditors." People also often assume that putting all of their property in joint tenancy with rights of survivorship eliminates the need for a will. Not necessarily. Take, for example, Jim and Ann, who own a vacation home as joint tenants. This is their second marriage, and each has a child from a previous marriage. After Jim and Ann die, they want both of their children to inherit the home. But if Jim dies first, Ann becomes sole owner. When she dies, Jim's child has no inheritance rights. Likewise, if Ann dies first, Jim becomes sole owner, and upon his death, Ann's child gets left out of the inheritance. To be sure the home will pass to both children, Jim and Ann need a will. This is just one situation among many in which joint tenancy with rights of survivorship in itself can't achieve a desired outcome.
Joint tenancy with rights of survivorship trumps a will.

Tenancy by the entirety

This is a form of ownership available in some states only to married couples and, in a few states, to registered domestic partners. It's based on the idea that a married couple is as one. When one spouse dies, the other automatically becomes sole owner of the property. Also, in most states that have tenancy by the entirety, neither spouse can sell or mortgage his or her half of the property without the other's approval.

Community property

Nine states have community property laws: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Under this arrangement, all property acquired during a marriage belongs to both spouses equally, no matter how much each spouse contributes financially to the household. But some property can be exempt. A spouse can maintain sole ownership of property he or she acquired before marriage, as well as personal gifts and inheritances acquired after marriage.

Seek legal advice

This information covers only the basics of property ownership. As noted, not all forms of ownership are available in all states. And the details surrounding any form of ownership vary from state to state. There is no formula for figuring out which form of ownership is best in various situations. Much depends on your individual circumstances. One thing is for sure--the form of ownership you choose has important ramifications. Consult an estate-planning attorney if you need help choosing the best option for you.