Joint Tenants vs Tenants in Common and their Effects on your Estate Plan
Your home will always be an important part of your Estate Plan. For many Australians, their home will be the single most important part of their Estate Plan. But do you know whether you own your home as a “Joint Tenant” or a “Tenant in Common”? It’s a question that few property owners have the answer to, yet it can have massive implications on Estate Planning.
Tenant in Common
If a person holds property with another as Tenants in Common, they own the property in separate shares. Usually, this means that one of the Tenants in Common may specify where they wish the share of the property to go in their Will. If a Tenant in Common who does not have a Will dies, the share will be distributed according to the “Rules of Intestacy”. For more information, on the Intestacy Rules, have a read of our FAQ Question, “What happens if I die without a Will?” by clicking here.
Joint Tenant
A joint tenant cannot specify where their share is to pass upon their death. If they do, such a direction will be of no effect. If a Joint Tenant dies, their share will automatically pass to the other Joint Tenant/s.
The Effects on your Estate Planning
This distinction raises several questions regarding what co-owners of a property wish to do with their share upon their death.
If spouses own a house together, it makes sense for them to own the property as Joint Tenants, as they will likely wish for each other to receive most (if not all) of their Estate anyway. If they do not wish for this to happen, they should “sever” the Joint Tenancy, which means converting their interest to that of a Tenancy in Common.
Outside of this situation, serious issues can arise if property co-owners hold a property as Joint Tenants, for example, if four siblings inherit their deceased parent’s home as Joint Tenants. If one sibling dies, their others will receive that share of the property automatically. This can be a problem where the siblings wish for their spouses, or their children, to receive a benefit from the share of the property, or its sale proceeds. If it is held as Joint Tenants, the sibling’s loved ones will not receive any of its benefits.
If the siblings wanted their share of the property to be sold, and for the sale proceeds to go to their own spouse or children, all the siblings would need to “sever” the Joint Tenancy, and become Tenants in Common.
These are just two scenarios which demonstrate why a proper understanding of “Tenants in Common” and “Joint Tenants” is crucial.
Your home is a valuable asset, and without tailored and specialised Estate Planning, your family may miss out on receiving it’s benefits. Call us for a free 20-minute chat to discuss your home and assets, or book a no-obligation consultation with us by clicking the button below.