Estate Planning FAQ: What are Tenants in Common?

Two people signing paperwork to become tenants in common on home purchase

When it comes to estate planning, there are many legal terms involved that can cause confusion. If you are attempting to take a DIY approach without help from an experienced probates and estates attorney, you’re likely going to have a lot of questions.

The term “tenants in common,” as well as the term “joint tenancy”—both of which refer to ways real estate property ownership may be structured—are two that often raise questions for those outside the legal world. That’s why we’re dedicating today’s blog post to explaining this terminology in a little more detail. Both ownership structures have benefits and drawbacks, and they affect how property is transferred to heirs.

So, What Does “Tenants In Common” Mean?

Tenants in common refers to the individuals involved in a tenancy in common (TIC), one of three possible types of shared ownership in estate property. (The others are joint tenancy and tenancy by the entirety.) Two or more parties can be tenants in common.

Some key things to understand about the TIC ownership structure are as follows:

  1. Tenants in common may have equal ownership in a property, or they could each own different percentages. For instance, person 1 owns a 25% stake in a home, while person 2 owns a 75% stake.
  2. Regardless of the percentage of the ownership stake, each of the property tenants in common has the right to occupy the entire property. (So, in the example above, person 1 has the same right to occupy the property as person 2, even though person 1 owns a smaller stake in the home.)

How Tenancy in Common Relates to Estate Planning

Two other big factors of TIC or ownership in common relate specifically to how property is transferred. Typically, a tenancy in common does not have what’s called a right of survivorship. That is, if person 1 in our previous example passes away, their stake in the property does not automatically transfer to person 2.

Instead, their ownership goes to a person they specify in their will. That could be person 2, but perhaps its someone else entirely—in a TIC structure, that’s allowed. Additionally, either person 1 or person 2 might sell their stake in the property while they are still alive.

Joint Tenants vs. Tenants in Common: Which Should I Choose When Buying Real Estate?

First, know that the ownership structure you choose needs to be enacted at the time you purchase real estate, so by the time you get to the estate planning phase in life, it may have been many years since your initial home or other property’s purchase.

Your goal is to ensure that your co-owned property can be passed along to your heirs or spouse in the way that you wish. That means paying attention and selecting the ownership structure that works best for you at the time of purchase. Consulting with an experienced attorney whenever you are purchasing property is the key to ensure that you have the options you expect for your estate down the road.

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Advantage of Tenancy in Common

Tenancy in common is a flexible choice, and it allows more than two people to own shares of a property. This structure can be used to protect an investment from a parent into a home being purchased by adult children just getting started in life, for instance.

The unique thing about a TIC structure is that the tenants in common might obtain the property together from one owner. They may also each purchase or inherit their ownership from different previous owners at different times. Interestingly, this could lead to a situation in which the co-owners of a property do not know each other.

Joint Tenancy Benefits

Granting equal shares in a property regardless of how many owners are involved, joint tenancy is a less flexible ownership structure. It does not allow owners to transfer their stake in the property either while they are living or through their will to heirs.

If you are a joint tenant with someone else, your ownership stake will automatically pass to the other owners of the property when you pass away instead of allowing you to choose who will inherit your stake. Perhaps the most significant benefit of this less flexible option comes in the form of saving on estate taxes and avoiding probate for the property when the first joint tenant passes away. His/her stake simply gets passed to the other owner/owners. (Note that you need not fear probate! Learn more in this previous post about surviving probate on our blog.)

Tenancy By the Entirety is a Third Option Available to Couples in PA

In some states—Pennsylvania among them—married couples can jointly own property in a structure that’s somewhat different from both a TIC structure and joint tenancy. This is known as a tenancy by the entirety, and it offers some protection from creditors that the other ownership structures may not. To determine whether this option is best for your unique situation, you’ll want to talk to a lawyer.

Have More Estate Planning FAQs? May, May & Zimmerman Has Answers

If you are beginning the estate planning process here in Lancaster County, PA, and have questions, our knowledgeable attorneys are your best resource. Likewise, if you are beginning the work of administrating or probating someone else’s estate and are trying to understand how certain things are arranged, we are ready to guide you—no matter how far along you are in the process.

It’s always easier to both plan your estate and work through probate with help from an experienced probate and estates attorney. We invite you to contact us for help in understanding all of your options and avoiding legal pitfalls.


This blog is being published for educational purposes only as well as to provide general information and a basic understanding of the law, not to provide specific legal advice. By entering this site you understand that there is no attorney client relationship between you and the publisher. This site should never be used as a substitute for competent legal advice from a licensed professional attorney in your state.

 

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