Holding property in a shared arrangement with others may take several forms. Each has particular advantages and potential risks. Two of the more common structures are joint tenancy and tenants-in-common (TIC). Let’s look at the similarities and differences between the two and examine when each is appropriate.
Tenants-In-Common structures involve shared ownership between two or more people. Each can have a different sized share than the others. For example, Sue can own fifty percent of a property, while Joe, Alice, and Kathy each have ten percent, and Bob owns the remaining twenty percent. If Sue wants, she can sell half of her share to a new person, Adam, and now Sue and Adam each own 25 percent. Sue doesn’t need approval from the other TIC participants to divide or dispose of her share. Also, each owner determines the disposition of their individual share in the event of death—there is no right of survivorship.
That is one of the significant differences between TIC and joint tenancy. In a joint tenancy, all owners have an equal, undivided interest in the shared property and the right to survivorship. That means that when any owner dies, their share passes automatically to the remaining owners. Joint tenancy is created when the owners combine to purchase an equal, undivided interest in a property. They all join simultaneously and have an equal right to the property.
Which Structure Is More Advantageous?
The best choice depends on the circumstances of the partnership. With a TIC partnership, each owner has unfettered freedom to manage their share of the property, but each owner has full responsibility for maintaining any mortgage or tax payments. For example, suppose the original group consists of four friends holding equal shares of a vacation home. Everything is fine until one person dies and their heir stops paying their portion of the mortgage yet continues to use the property and refuses to sell to the group. The remaining three members of the original group may have to take legal action to force a sale.
If the structure, in this case, had been a joint tenancy, the death of one participant would have been less disruptive. That person’s share would have been divided and distributed to the remaining owners. However, one joint tenant can sell their share, but that ends the joint tenancy agreement for that share. If one owner wants to sell the entire property, they can’t force the others to sell. It’s crucial for joint tenancy agreements to be clear about the individual responsibilities of ownership, maintenance, and disposition.
