Joint tenancy is when two or more people have equal legal ownership of property. Joint tenancy co-owners are also called joint tenants. This type of property ownership creates what’s called a right of survivorship—if a joint owner dies, their ownership interest passes to the surviving joint tenants. 

Joint tenancy applies to different types of assets, from bank accounts to real estate. In real estate, often people enter joint tenancy when they buy a property. In these instances, the property’s deed lists both owners, giving them an equal share of the property.

However, joint tenancy applies to real property—not personal property. Real property is land and anything attached to it. For example, a house and its one-acre lot constitute real property, while the furniture inside the home is personal property. 

Related laws vary by state. Currently, twenty-five states and the District of Columbia recognize some form of joint tenancy.

Some states consider things acquired during a marriage as “community property.” This statute covers assets such as real estate that the married couple buys.

There are nine community property states:

In these states, courts apply shared ownership to everything acquired by a couple during their marriage, including a mortgage—although specific laws vary.

The crucial difference between community property and joint tenancy is the right of survivorship. With community property, a married person can’t pass property to someone other than their spouse. With joint tenancy, though, a co-owner can choose another beneficiary through a living trust or will. 

Joint tenancy is one type of shared property ownership. Another is tenants in common (TIC). 

Unlike joint tenancy, most TICs don’t include the right of survivorship. And tenants in a TIC usually don’t have an equal ownership interest in a property. Instead, tenants in a TIC can own unequal shares of a property, even when they maintain equal rights to a property. They can also transfer ownership to another tenant.

Let’s say three people buy a house. Each wants equal rights to the entire property. But Person A pays for 60 percent of the property’s cost, while Person B and C each provide 20 percent. The owners enter into a tenants in common agreement. 

The TIC states that Person A owns 60 percent of the house, and Person B and C own 20 percent. If Person A dies, Person B and C do not receive Person A’s property ownership. Person A’s will instead determines the beneficiaries of their estate.

Any of the co-owners can transfer their ownership interest to another tenant. For example, Person A can transfer their 60 percent property ownership between Person B and C. Doing so leaves Person B and C with an equal share of ownership.

Another difference between joint tenancy and tenants in common is the method for terminating the agreements. A joint tenancy dissolves if a joint owner sells or transfers their ownership interest to another tenant. This action turns a joint tenancy into a TIC.

To disband a TIC, though, requires one of these options:

Joint tenancy plays a crucial role in estate planning. As mentioned above, joint tenancy provides co-owners with the right of survivorship. If a co-owner dies, their surviving co-owners receive their property ownership.

If the co-owners are a married couple, the surviving spouse becomes the sole owner of the property. If there are three owners, though, and one dies, the remaining joint tenants receive an equal share of property ownership.

The right of survivorship with joint tenancy also allows co-owners to avoid paying estate taxes. That’s because when a joint tenant dies, their ownership interest doesn’t become part of their estate. The estate tax comes into play only when all surviving tenants die.

For example, Person A and B own property in a joint tenancy. Person B dies, and Person A becomes the sole owner. Person A does not owe an estate tax. When Person A passes away, they bequeath their ownership interest to their children, who may be liable for estate taxes after inheriting the property.

There are legal implications of joint tenancy to consider.

First, as joint tenants own an equal share of an entire property, they’re also equally legally responsible for that real estate. For example, if a co-owner fails to pay their taxes, the government can place a lien on the property.

Also, adding someone to an existing joint tenancy can cost money in the form of a gift tax. A gift tax is a federal tax charged when an individual gives something of value to another person. 

People can receive gifts up to a certain amount, though, without triggering the gift tax. This amount—called a gift exclusion—varies by calendar year. In 2020, the IRS’s gift exclusion is for gifts up to $15,000 in value. Anyone receiving a gift exceeding this amount must pay a gift tax.

The IRS excludes most gifts between spouses if both are U.S. citizens. If not, in 2020, a noncitizen spouse can receive up to $157,000 in gifts from their citizen spouse.

A gift tax impacts joint tenancy if someone is added as a co-owner to an existing agreement. In this case, the new co-owner must pay a gift tax on the value of the property. Let’s say two joint tenants add a new co-owner to a house valued at $200,000. The IRS views this step as giving the new joint tenant a $200,000 gift, and they require the donor to pay a gift tax.

Joint tenancy can put you at risk of claims from the other party’s creditors. For example, let’s say you own property jointly with your sibling. If they default on a loan, their creditors may be able to go after the property in entirety. While this isn’t applicable in all situations and states, it’s important to confirm before investing. 

Joint tenancy can have unintended consequences on inheritance.

For instance, two people marry in a joint tenancy state. Each has two children from before their marriage. The wife dies, and her husband inherits her house. He later dies without accounting for his wife’s children in his will or living trust. His kids inherit the property, not his wife’s, even though she owned the property before their marriage.

Or, two people co-own a property. One falls ill and is unable to make decisions. But the other tenant can’t make decisions about the real estate without their co-owner’s permission. Many joint tenants avoid this scenario by signing a durable power of attorney. Doing so gives the other owners permission to manage their affairs if they’re unable to do so.

Divorce can be another complication. With joint tenancy, both partners are still responsible for the debt—so the wife, for example, can’t rent out her portion of the property and keep 100% of the proceeds. 

There are many implications in deciding the right ownership structure for your property. And each scenario varies. You may want to discuss with an attorney to determine what’s best for you.