To Be Or Not To Be A Joint Tenant

I have blogged about joint tenancy before, but it turns up so typically in my practice, it is worth discussing once again.


For the majority of individual deals, individuals do not consult their legal representatives. Instead, they rely on suggestions and info from other experts such as genuine estate brokers, financial coordinators, bankers, etc. When I ask most clients how they hold title to their residential or commercial property, they don't understand. It is something they need to understand, as title has numerous legal repercussions.


Regarding the purchase of a home by a couple, there is a simple option that is used infrequently that can supply considerable benefits. That alternative is owning the home as occupants by the whole. Most deeds that I see from title companies have a couple taking title as "joint occupants with rights of survivorship" ("joint renters"). This form of ownership results in the couple owning the residential or commercial property similarly (unless otherwise specified) and further supplies that the home will instantly pass to the surviving spouse upon the death of the first partner.


Assuming that joint tenancy is a correct option for the couple (see conversation listed below), it is practically never the very best option. In my opinion, a hubby and better half ought to nearly never ever hold title to their residence as joint tenants. Why? Because owning the home as renters by the whole is practically precisely the very same as joint occupancy however with one significant benefit. Under Illinois law, if a home is held as occupants by the totality, a financial institution can not require the sale of the home to pay a debt of simply one spouse.


For example, assume that spouse and wife own their home as occupants by the entirety which spouse has a gaming problem or is in a cars and truck accident or is a physician who is sued for malpractice, and that a creditor acquires a judgement against hubby. That financial institution can not force the home to be sold to pay the spouse's debt. A creditor can only force the home to be offered to pay a financial obligation if both hubby and other half are accountable on the debt. For instance, if partner and spouse jointly borrow money, then the home can be utilized to satisfy that financial obligation. The one significant exception for creditors is, as always, the Irs. The IRS can seize a home held as renters by the totality for the tax financial obligation of only one partner.


Not all states have tenancy by the entireties, and there are distinctions in between the laws of various states. In Illinois, in order to validly hold title as occupants by the wholes, (1) two individuals should be married (or in a civil union), (2) the deed needs to determine them as married which they are taking title as occupants by the entireties, (3) the residential or commercial property should be their homestead house (not a second home or rental residential or commercial property), and (4) both celebrations must live in the residence. If one or both spouses vacates the residence, the spouses divorce or one spouse dies, the home is no longer held as tenants by the totality although the deed still says that it is.


If a couple presently own their homestead house as joint occupants, they can reconvey it to themselves as occupants by the entirety and obtain the financial institution defense advantages. However, they will not obtain the benefits "if the residential or commercial property was moved into tenancy by the entirety with the sole intent to avoid the payment of financial obligations existing at the time of the transfer beyond the transferor's ability to pay those financial obligations as they become due." That indicates you can not wait till one party already has a financial obligation she or he can not pay to make the transfer.


One more difference in between joint tenancy and occupancy by the wholes is that in joint occupancy, one partner can move his or her interest in the residential or commercial property. With tenancy by the entireties, any interest in the home can not be offered, handed out, etc, without the signature of both partners.


Now I want to tenancy in general. It appears this is the default designation for genuine residential or commercial property, bank accounts, brokerage accounts, etc, and frequently it might be the suitable choice. However, no two individuals (whether couple, parent and child, or anyone else) ought to take title to residential or commercial property as joint renters with rights of survivorship without entirely comprehending what that indicates.


Any residential or commercial property held as joint tenants with rights of survivorship has two significant legal consequences. The first is that both parties have complete rights and access to the entire residential or commercial property. For a checking account, this suggests that either celebration can legally withdraw the whole account. It also indicates that the financial institutions of either party can use the residential or commercial property to satisfy a debt. For a couple, this might be the wanted result. For a moms and dad and kid, it might not.


The 2nd significant effect is that at the death of the first celebration, the residential or commercial property instantly goes by law to the surviving celebration, separate and apart from any will or trust arrangement. Again, for husband and wife, this may be acceptable, however it might not. For example, if couple have trusts under their will for tax functions, the joint occupancy residential or commercial property can not be utilized to fund those trusts. Or, if hubby and partner do not leave their residential or commercial property to the very same people under their wills, joint tenancy may not be the right option. For example, presume couple each have children from a previous marriage. Wife's will states that her residential or commercial property goes to her children. Any possessions she owns as joint renters with her partner will pass to him and not her children as specified in her will. Or, assume her will supplies that all of her residential or commercial property goes into a trust. Husband receives the income for his life time, however what is left when he passes away passes to other half's children. Again, residential or commercial property held as joint tenants with hubby will not pass under the will however will rather go outright to the spouse. He may or might not then leave that residential or commercial property to better half's children at his death.


The exact same analysis applies with kids. It is common for a moms and dad to add a kid's name to a checking account, especially when the moms and dad is older and desires some assistance paying the bills, etc. If that kid is added to the account as a joint tenant, that account will pass to the kid at the parent's death despite any will. That child might or may not share that account with his brother or sisters. Or, he may or might not utilize it to pay funeral service expenses, even if that was the parent's intention. The service? Add the kid to the account as a "benefit signer" and not as a joint occupant. That indicates the child can sign checks, however the account will not pass to him at the moms and dad's death.


Bottom line: Don't automatically title your residential or commercial property as joint occupants. Explore your options and talk with your legal representative or accounting professional if you have concerns.