If you own property under a tenants-in-common (TIC) agreement, it’s essential to understand how it affects inheritance for your future beneficiaries. A tenants-in-common structure gives ownership rights to tenants under the agreement and automatically transfers to the estate of a tenant upon death.
Explore how a tenants-in-common agreement affects inheritance and considerations for leaving your TIC property to your beneficiaries.
What Is a TIC Structure?
A tenants-in-common (TIC) structure refers to an agreement that gives two or more people ownership rights in a property or piece of land. A TIC may be in place for residential or commercial property, and in a TIC, each owner can have an equal or varied percentage of ownership. For example, you may hold 25% ownership while another person retains 75% ownership.
Each owner in a TIC agreement has the right to borrow or sell against the portion of the property they own. If the owners want to get out of the agreement, the other owners can buy out their share or agree to sell the entire property.
TIC Structures and Inheritance
If an owner of a property under a TIC agreement passes away, their portion of ownership is added to their estate. The beneficiary or beneficiaries listed in the estate retain the same percentage of ownership in the TIC property.
For example, if you owned 25% of a property under a TIC, that 25% ownership passes to the people listed as beneficiaries in your estate documents. If you have multiple beneficiaries, you can specify which beneficiary will receive your TIC ownership portion or break down ownership rights further from your 25%. For example, if you have two beneficiaries, you can leave 15% ownership to one and 10% ownership to the other.
When you leave a TIC property to a beneficiary, they may need to pay inheritance tax. However, inheritance tax is only applicable in six states: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. If you leave your TIC property to a beneficiary that lives out of state, they may not have to pay inheritance tax.
How to Leave a TIC to a Beneficiary
If you don’t name a beneficiary for your share of the TIC, then your portion of ownership will likely go to probate. Probate is a lengthy court process that determines how to distribute a deceased person’s assets to beneficiaries. It involves appointing an estate representative and can result in the transfer of assets to people you may not have chosen yourself.
To leave a TIC to a beneficiary, you must create the appropriate documents to transfer the property to your designated beneficiaries. If you want to split up your portion of ownership between multiple beneficiaries, you must specify this detail in legal documents regarding your estate.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.