When you buy a home with your spouse, a sibling, other family member or friend, you’ll need to decide how to share ownership of property and what happens should one party die. In most cases, you’ll enter what’s called a joint tenants with right of survivorship agreement. Known by its acronym, JTWROS, this agreement spells out the legal rights of all owners of a property and outlines what happens if one of the owners dies or wants to sell the home. Before you buy a home with another person, it’s important to understand what is joint tenancy with right of survivorship works, JTWROS tax implications, how to enter into a joint tenants with rights of survivorship agreement, the pros and cons, and alternatives to consider.
Key Takeaways:
- Joint tenancy with right of survivorship provides equal ownership and use of a property while automatically transferring ownership to surviving co-owners without probate.
- JTWROS requires the “four unities” of time, title, interest and possession, and applies to assets like real estate, financial accounts and personal property, but has estate planning limits.
- It’s easy to set up and avoids probate, but JTWROS has downsides like inflexibility and potential financial risks from co-owner issues.
What Is Joint Tenancy With Right Of Survivorship?
A joint tenancy with right of survivorship is an agreement between two or more people to share equal ownership of an asset, such as a house, and have equal rights to use and enjoy it. It’s the most common way of buying a home with a spouse, partner or family member.
If you’re a married couple buying a house, a JTWROS arrangement means you share ownership rights to the property equally. If your spouse dies, the entire ownership of the home will pass to you, and vice versa.
Joint tenancy also applies if you buy a home with a friend, sibling or business partner and specify on the property deed that owners hold title as joint tenants. Again, if one person dies, the survivors would take over their ownership share of the property.
“When it comes to assets such as houses, financial accounts, or even vehicles, joint tenancy with right of survivorship offers a straightforward and efficient way to ensure a seamless transfer of ownership to the surviving co-owner without the administrative burdens of probate,” says Dana Blue, an estate planning and probate attorney in Kennett Square, Pennsylvania.
A JTWROS also can be used if you are buying a property with more than one co-owner. In that case, ownership would pass equally to all other surviving owners if one owner dies.
Joint tenancy is widespread because it protects all owners of a property. One owner can’t sell the home or take out a second mortgage without the co-owner’s agreement.
The Four Unities
Four essential rules – often called the “four unities” – must be followed for JTWROS to function as intended: time, title, interest, and possession.
Time means all owners must acquire their share of the property at the same time. “That means if two sisters buy an investment property together then later decide to add their brother to the deed as a third owner, the joint tenancy title held between the sisters converts to tenants-in-common, which has different ownership rights,” Blue says.
“All owners are entitled to use the entire property or land,” says Blue. In other words, all owners have an equal right to occupy and use the entire property – regardless of their individual shares.
If any of these unities are violated, the joint tenancy is nullified.
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How Does Joint Tenancy With Right Of Survivorship Work?
The “right of survivorship” designation is important: If a co-owner dies, their interest in a property automatically transfers to the surviving co-owner. If there are multiple surviving owners, the deceased owner’s share is divided equally among surviving co-owners.
Joint owners titled on a property deed as JTWROS cannot sell or transfer their ownership interest to another person, even if instructed to do so in a will. For example, if you bought your home with a sibling under a JTWROS arrangement and your sibling dies, they can’t bequeath in their will their ownership interest to their children. Instead, that interest automatically passes to you.
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What Can Be Owned With Joint Tenancy With Right Of Survivorship?
Joint tenancy with right of survivorship extends beyond real estate to apply to other assets, including:
- Financial accounts, such as jointly held bank accounts or brokerage accounts.
- Personal property, including automobiles, collectibles, artwork and other assets that have monetary value.
- Businesses, such as co-owned business properties or assets.
Reconciling JTWROS With Probate
Probate is the legal process of transferring a deceased person’s property to their beneficiaries. When one partner in a JTWROS dies, the agreement takes precedent over the deceased party’s wishes.
“One primary benefit of joint tenancy with right of survivorship is that the property title automatically transfers to the survivor or survivors upon death, and it is not necessary to go through probate,” says Bruce Ailion, a real estate attorney and Realtor in Alpharetta, Georgia.
“However, to ensure this transition is recognized, it’s essential to record the death certificate with the relevant property registry of the financial institution promptly,” says Dennis Shirshikov, a finance and economics professor at City University of New York Queens College. “This step formalizes the ownership change.”
Tax Implications For JTWROS
The tax consequences of joint tenancy with right of survivorship vary depending on whether the property owners are married. If you buy a home with your spouse in a JTWROS arrangement, you may have to pay capital gains taxes when you sell the home after your spouse dies.
Usually, when you sell an asset, including a home, that increases in value, you must pay taxes on the profit. The amount you pay varies depending on your income, filing status and how long you owned the asset.
All U.S. taxpayers qualify for a personal exemption when selling their primary residence. The exemption is $250,000 of profit for single individuals and $500,000 of profit for married couples filing jointly. If you make less than $250,000 in profit selling your house as an individual or $500,000 if you are selling with your spouse, then you pay no capital gains taxes.
If you and a non-spouse have a JTWROS agreement, taxes can be more complicated. If one owner dies, the IRS might consider the transfer of their ownership portion of the home as a gift, which means that the surviving owner may need to file a gift return with the IRS.
It’s best to discuss these financial issues with an accountant or tax specialist, especially if you are purchasing a home with someone other than your spouse.
How To Enter A JTWROS Agreement
Entering a JTWROS agreement is simple: All co-owners of a property must acquire their equal share through the same house deed at the same time.
When you buy a home, you and your co-buyer – your spouse, sibling, business partner or any other combination – must decide how you want to take title. If you want a JTWROS purchase, all buyers must agree to this.
Alternatives To Joint Tenancy With Right Of Survivorship
If you want a different arrangement, there are other ways to handle property ownership.
Tenants In Common
Tenants in common can hold unequal shares in a property. One owner may hold a 70% share while the other only has a 30% share. Co-tenants have the right to sell or transfer their shares as they choose.
Tenants in common is a good choice for buyers who want to leave their share of the property to someone besides the co-owner. With tenants in common, there is no right to survivorship, making it possible for owners to leave their share of the property to their children or other heirs.
“However, property titled as tenants-in-common will still require probate of the deceased owner’s share, and if heirs, beneficiaries, or co-owners don’t agree, a judge can order the property to be sold,” Blue says.
Community Property
Some states are community property states, meaning that any property a couple buys during their marriage belongs equally to both spouses.
This type of ownership is only relevant in states where this applies:
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
Additionally, Alaska allows spouses to opt-in to community property ownership.
In a difference from JTWROS arrangements, though, spouses with this type of ownership may will their interest in the property to another party. Owners can include the right of survivorship in this type of ownership. If that happens, the deceased spouse’s interest would be transferred to the surviving spouse upon that person’s death, as with a JTWROS.
“Community property provides tax benefits,” Shirshikov says. “But the downside is that it lacks the automatic transfer feature unless titled with rights of survivorship.”
Revocable Living Trust
Another alternative is a revocable living trust, which allows you to set clear instructions for dividing your property. The main advantage here is that assets placed in a trust avoid probate.
“This is a great option for families or someone who wants to bequeath property or money to someone who they aren’t legally married to,” says Ashley DeHart, a Realtor with Realty From DeHart in Fresno, California. “This saves time, money and stress for the surviving individuals. One can also set up a trust in such a way that there is a person who receives the property and another who is in charge of making decisions regarding that property.”
On the downside, trusts involve a significant upfront investment of time, effort and money spent on legal costs and ongoing management.
Risks And Dangers of Joint Tenancy With Right of Survivorship
There are drawbacks to a JTWROS arrangement, including inflexibility.
“If one co-owner wishes to sell their share, it may dissolve the arrangement,” Shirshikov says. “Additionally, creditors of one owner can pursue the property, impacting all co-owners. Plus, this setup also lacks the estate planning advantages of a trust, as the right of survivorship overrides any wills that exist.”
If you add someone as a joint tenant, you relinquish some control over the property. If the other party encounters financial or legal problems, these issues could also affect the property. And joint tenancy might not allow you to pass on your property the way you want.
Perhaps the most significant risk is that, in life, circumstances can change in ways you didn’t expect.
“For example, imagine you’re a spouse who remains married but estranged in your marriage,” Ailion says. “At one time, you and your spouse might have intended the interest in your marital home to go to the surviving spouse, which caused you to establish a joint tenancy with right of survivorship. Now, however, you both would prefer the property be transferred to your children, perhaps in unequal proportions, or to a long-time companion. You may have forgotten or overlooked how the title was initially taken. But if your estranged spouse receives the property through a right of survivorship, that would be contrary to your plans after death in this case.”
Pros and Cons Of Joint Tenancy With Right Of Survivorship
There is a reason why the joint tenancy with right of survivorship legal structure ranks as the most common way for two or more people to buy a home together: It comes with plenty of benefits. Yet, as with all ownership models, joint tenants with rights of survivorship has drawbacks, too.
Pros
- Continuing tenancy: When one of the owners dies, the remaining owner immediately takes legal possession of the entire property. This owner will never have to share possession.
- Avoiding probate: Unlike in other ownership arrangements, no court action is necessary to transfer ownership rights to the surviving owner or owners. These rights are automatically transferred upon the death of an owner.
- Splitting ownership: With JTWROS, it’s easy for the co-owners of a property to split ownership: Everyone has an equal share of the property. This also means that every co-owner is responsible for maintaining the home and making the mortgage payments.
- Relatively simple setup: “Joint tenancy with right of survivorship is fairly easy to establish, making it a practical option for families and small business partners,” says Shirshikov.
Cons
- Disregarding a will or owner’s heirs: Owners can’t will their ownership share to their heirs. When owners die, their share of the home immediately passes on to their co-owner or co-owners. If you want to pass your portion of a home to a child, you’ll need a different form of ownership.
- Sharing financial responsibility: With this ownership model, all owners are equally responsible for paying the mortgage. If one of the owners misses payments, the other owner or owners will have to cover the shortfall.
- Failing if the relationship sours: Partnerships can fail. If you buy a home with a partner and your relationship sours, you’ll have to both agree to sell the property. If you want to sell and your partner doesn’t, you are not legally allowed to put the property on the market. The same applies if you refinance the mortgage on the property or take out a home equity loan. Without your co-owner’s agreement, you can’t refinance your home or borrow your equity.
FAQ
Here are answers to common questions about joint tenancy with right of survivorship.
The Bottom Line
How you take title of a property you buy with another person has significant implications if one of you dies. That’s why it’s so important to understand how JTWROS differs from other forms of shared tenancy. Joint tenancy with right of survivorship is a powerful tool for property ownership, but like any legal arrangement, it comes with rules and risks. It’s always wise for buyers to speak with an attorney before deciding on how to take the title of a home they are buying.
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Dan Rafter contributed to the reporting of this article.
Erik J. Martin
Erik J. Martin is a graduate of Loyola University Chicago and a freelance writer whose articles have been featured in AARP: The Magazine, Reader's Digest, The Costco Connection, The Chicago Tribune, Los Angeles Times and other publications. He often writes on topics related to real estate, personal finance, technology, health care, insurance and entertainment. He also publishes several blogs, including Martinspiration.com and Cineversegroup.com, and hosts the Cineversary podcast.
