How Property Co-ownership Affects Estate Planning

Property Co-ownership

Due to interest rates, low inventory, and inflation, the prices of homes have skyrocketed. For this reason, property co-ownership is common. People opt to partner with relatives or friends to buy property to lower individual costs. Nevertheless, jointly purchasing a house can give rise to complications, such as challenges related to inheritance. Therefore, when co-purchasing a property with someone else, it becomes crucial for the co-owners to determine the most suitable way to hold the title, ensuring that it harmonizes with their objectives for building wealth and planning their estate.

Co-Ownership & Titles

Co-buying property reduces the down payment costs, mortgage payments, utilities, and other household expenses for each buyer. Furthermore, co-ownership allows each buyer to build equity, and owners can also rent their property or flip it for profit.

However, co-ownership has some potential downfalls. For instance, if one of the buyers has a poor credit score, it could harm the mortgage terms for the other buyer. Moreover, if one party struggles to meet financial commitments, it could place the burden of covering any budget deficits on the other party.

Typically, co-owners are jointly named on the mortgage loan and property title. However, having multiple individuals on the title can lead to estate planning considerations that warrant careful consideration. There are various methods of titling joint ownership:

Tenants in Common

Tenants in common on a title refer to a property ownership arrangement where multiple individuals share ownership. Each has a distinct and individually transferable share or interest in that property. If one owner passes away, their share of the property does not automatically transfer to the other owners. Instead, it is inherited by their chosen beneficiaries.

Joint Tenants With Right of Survivorship

Each joint tenant has an equal ownership interest in the property, and all tenants share the right to use and enjoy the property. If one owner passes away, their share of the property transfers to the surviving joint owner(s). For this reason, the property avoids the probate process.

Tenancy by the Entirety

This unique form of property ownership is exclusively available to married couples. It offers protection against creditors since property held in this manner is generally shielded from the creditors of one spouse. However, it could be susceptible to creditors’ claims against both spouses.

Joint Ownership & Estate Planning

For most individuals, their home represents their most significant investment and is central to building wealth. This is true even if they have co-ownership of property. Deciding what to do with shares of a co-owned property is a significant estate planning consideration.

Each owner must understand the title arrangement when purchasing a house together to ensure it aligns with their estate planning preferences. For instance, while joint tenancy might be suitable for a married couple, there may be better options for friends or unmarried partners, as it restricts their ability to leave the property to anyone other than the co-owner.

For individuals who are already homeowners, how their property is titled remains a crucial consideration in their estate planning. Over time, circumstances can evolve, and the initial title terms may no longer align with a person’s present wishes.

We Can Help Get Your Estate Planning House in Order

Our estate planning attorneys can provide detailed insights into various joint ownership options’ advantages, drawbacks, and ramifications. We’ll help you choose the most suitable one for your circumstances. Contact us today to take the first steps of organizing your estate planning effectively.