This question has come up a few times lately when a co-owner of real property dies, and it is discovered that documents were recorded without the knowledge of the surviving co-owner that changed how the title to the real property is distributed.
A recent client contacted me because five decades ago they bought property with their sibling and took title as joint tenants with rights of survivorship. The understanding, not in writing, was that one sibling would contribute more to the purchase price and that they would take the deductions (i.e, mortgage interest and property taxes) on their income tax returns. The other sibling would use the property as their residence, improve it and maintain it. They agreed that If one of them died, then the property would pass to the survivor without the requirement of a probate proceeding and not pass to the deceased sibling’s children.
Time passes and the sibling who did not live on the real property dies. The surviving sibling, who resides on the property and has maintained it for years, discovers that they now co-own the real property with the sibling’s trust which names that sibling’s children as beneficiaries. At one point in the 50 years that the siblings were relying on this arrangement that was not in writing, one sibling executed and recorded a deed that transferred their interest to their trust. The result of executing this deed is that the joint tenancy was severed, and the ownership changed to tenants-in-common. With this severance, the surviving sibling does not receive 100% of the real property and now has to contend with their niece and nephew regarding the management of the property.
The biggest difference between joint tenancy and tenants-in-common is that there is no right of survivorship with tenants-in-common and the co-owners are considered to own a divided 50% (or any other percentage as reflected on the deed) interest in the real property. The right of survivorship means that the surviving co-owner(s) automatically receive the deceased co-owners interest by operation of law. No probate proceedings are required and the interest passes irrespective of what the deceased co-owners estate planning documents provide. And yes, a co-owner can unilaterally sever a joint tenancy without informing the other co-owner.
How can this be avoided? The quick answer to that question is to not do it. Look at other alternatives to what the intent is between the parties. Obviously, this does not apply to spouses or domestic partners since there are other protections and duties in place regarding the management of community property. We see this issue come up often between siblings or co-habitants (i.e, unmarried couples).
If co-ownership of real property is necessary, then have a written agreement regarding the particulars of the ownership. The agreement can detail who is responsible for what, such as paying the taxes and maintaining the property. And what would be important for the client’s situation discussed above, it can detail when and how an interest in the real property can be transferred. That could have solved the problem that arose with my client in that they could have at least been informed of the change and the issue could have been addressed before the death of the sibling. Having the agreement in writing and signed by all parties is important for enforcing each parties’ rights regarding the real property. The agreement can eliminate or streamline any litigation that could arise in the co-ownership.
Our firm can talk you through options with co-owning including assisting with drafting of agreements or update estate planning documents to reflect your intent with real property.