Property ownership between two or more individuals can take on many different forms, from tenancy in common to joint tenancy to community property. The legal relationship between property owners is paramount to ensuring ownership is transferred according to your desires during your lifetime or after you pass.
In this article we’ll take a look at how the tenancy in common (TIC) ownership structure between children and their parents affects ownership interests, rights of survivorship, and other legal considerations.
Pros of Jointly Held Property Between Parents and Children
Shared households -- homes where adult children live with their parents -- are common throughout the country. A Pew Research Center report in late 2020 found that just over half of adults ages 18 to 29 were living with one or more parents.1 That’s the highest number of kids living at home since the Great Depression. Additionally, 18 percent of adults ages 25 to 34 resided in their parents’ household, the report found.
Oftentimes, these adults and their parents enter into shared contractual ownership of homes, condominiums, or townhomes. The combined purchasing power affords co-owners greater leverage and flexibility when searching for properties.
Tenant in common is the most well-established form of property ownership between two or more people, including parents and children. Although co-tenants may have different ownership interests -- 75 percent and 25 percent, for example -- all areas of the property are equally shared.
A primary greatest benefit of a TIC ownership arrangement is that it also allows you to freely transfer your ownership rights to an heir of your choosing through your will. For example, if a mother and daughter pool their funds to purchase a house, the mother can name the daughter sole heir of the property in her will. If the mother forms a revocable living trust with the daughter named as sole beneficiary, the mother's ownership shares pass to the daughter upon death outside of costly probate proceedings since all assets within revocable living trusts avoid probate.
There can be some potential drawbacks to the TIC ownership structure, however.
Cons of TIC With a Parent
A TIC agreement allows owners to convey their ownership interests to another party regardless of the other owners’ desires. The daughter who bought a home with her mom could effectively convey her ownership interests in the property to an undesired party regardless of the mother’s wishes.
There can be additional potential disadvantages to the TIC ownership structure as well. If one co-creditor defaults on a significant debt, creditors can attach a lien on the property or sue in a process called “partition proceeding.” A judge could rule that the property be sold to satisfy debt regardless of the co-owner's objections.
Lastly, if co-owners have conflicting interests -- the daughter wants to sell the house and move to another state, for example -- the co-tenant can legally force a court-ordered sale of the asset through a petition to partition. This process is costly and time-consuming, however, and it often can be avoided through mediation.
The Bottom Line
Tenancy in common affords more contractual flexibility versus another common form of property ownership, joint tenancy. In a joint tenancy, each tenant has equal ownership interests, and upon one tenant’s passing, their ownership interests are transferred to the other surviving property owner or owners. In a TIC, ownership interests are divided, and ownership shares are transferable or distributed as the owner wishes.
Multi-generational living arrangements can be beneficial, but they also can present some legal issues regarding ownership and contractual responsibility. Ensuring you are fully aware of the legal ramifications regarding tenancy in common ownership between yourself and your children before purchasing a home together can avoid some troublesome issues later on.
1. Estimated 17.8% of Adults Ages 25-34 Lived in their Parents Household Last Year, Census.gov, https://www.pewresearch.org/fact-tank/2020/09/04/a-majority-of-young-adults-in-the-u-s-live-with-their-parents-for-the-first-time-since-the-great-depression/
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. 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.