Tenancy in common is a type of legal arrangement that involves at least two parties sharing ownership rights for a piece of real estate or parcel of land. The owners can have an equal percentage in the property or a proportional percentage. For instance, if the property is owned by two people, it could have a proportional ownership structure of 60/40. This type of ownership structure can be used with residential and commercial properties alike.
There are three forms of shared ownership, which include tenancy in common, tenancy by entirety, and joint tenancy. A tenancy in common structure doesn't have the right to survivorship in the event that one of the tenants-in-common dies. In this situation, the decedent's share in the property will be passed over to their estate, which is when a beneficiary for the share can be named.
If you own property, there are several ways to define this property, the primary of which include:
As mentioned previously, tenancy in common occurs when at least two people share ownership rights to the property. In the event that one of the owners dies, their property will pass to their heirs. Keep in mind that having a different share of ownership doesn't equate to having a different share of the actual property. Every area within the property is owned equally by the various owners.
Let's say that you and your spouse each have a 25% ownership in the property. If a roommate of yours owns the other 50%, they will technically have a higher ownership share but can't claim ownership over a specific aspect of the property.
Although not as common as sole ownership and tenancy by entirety structures, the tenancy in common ownership structure gives you the opportunity to purchase property alongside one or more individuals, which can substantially reduce your upfront costs. Since there are different ownership structures that can be made when buying real estate, it's essential that you understand how each of these structures work.
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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.