Inheriting property can be an emotionally charged experience, especially when it is shared among siblings. One of the most common concerns I hear from clients who co-own inherited property with their siblings is, “What happens if one of us dies?”
This question becomes critical when creating or updating an estate plan, as it directly impacts future ownership of the property. Understanding the legal structure of the ownership is essential to prevent surprises and ensure that the property is handled in accordance with everyone’s wishes.
Understanding Property Ownership Structures
When co-owning property with siblings or other family members, the property deed plays a crucial role in determining what happens if one owner passes away. Typically, inherited property is owned in one of two legal forms: Joint Tenancy with Right of Survivorship or Tenancy-In-Common. While these terms may sound familiar, it’s vital to fully understand their implications, as they dictate how ownership transfers in the event of a co-owner’s death.
Joint Tenancy with Right of Survivorship (JTWROS)
If the inherited property is held in Joint Tenancy with Right of Survivorship, this means that when one of the co-owners dies, their share in the property automatically passes to the remaining owners. This transfer happens without the need for probate and overrides any instructions regarding the property in the deceased owner’s estate plan.
For example, if three siblings own a house under joint tenancy, and one of them dies, their share would automatically be split between the surviving two siblings. This automatic transfer can cause unexpected complications for families who assumed the property would pass down to the deceased owner’s children or spouse. Instead, the property remains with the co-owners until only one remains, at which point it becomes part of that surviving owner's estate and is distributed according to their will.
This structure can be beneficial in avoiding probate and ensuring a smooth transition of ownership, but it may not align with everyone’s long-term goals. Families who wish to pass the property down to their children or keep it within a certain branch of the family need to be aware that joint tenancy may prevent this from happening.
Tenancy-In-Common
On the other hand, Tenancy-In-Common allows for more flexibility when it comes to ownership and inheritance. In this structure, each co-owner holds a specific, divisible share of the property, which can be passed down to heirs according to their individual estate plans. This means that if one sibling dies, their share does not automatically go to the other siblings but rather to whoever they designated in their will.
Tenancy-in-common also allows for unequal ownership percentages. For instance, one sibling may own 40% of the property, while two other siblings own 30% each. This structure is especially useful if family members contribute different amounts toward the property or have different intentions for its use or sale.
However, there are potential drawbacks to this arrangement. When a co-owner dies without an estate plan, their share must go through probate, which can be a lengthy and expensive process. Moreover, if the deceased owner had significant debts, creditors may seek to claim their interest in the property to satisfy those debts. To avoid such complications, it is crucial that each co-owner has a clearly defined estate plan.
Implications of Ownership Structures When Your Sibling Dies
The type of ownership structure significantly affects the future of the inherited property, particularly when one owner dies. In Joint Tenancy with Right of Survivorship, surviving owners automatically receive the deceased’s share, effectively concentrating ownership among the remaining family members. However, this can disrupt the plans of anyone who intends to leave their share to non-co-owners, such as children or a spouse. In this case, joint tenancy could unintentionally prevent the family from keeping the property within a broader group of heirs.
On the other hand, Tenancy-In-Common allows more control over what happens to your share of the property after your death, but it also introduces complications like probate, creditor claims, and disagreements among the heirs. For families looking to retain some level of flexibility or pass property down in uneven shares, tenancy-in-common is often the preferred option, but it requires thorough estate planning to avoid future legal entanglements.
Why Understanding Ownership Structure Matters
Many clients are surprised to discover that their assumptions about property ownership do not match the reality of the legal structure on the deed. For example, a family may have owned a beloved vacation home for generations, assuming that it will be passed down seamlessly to future generations. However, if the property is held in joint tenancy, the surviving co-owners will inherit the entire property upon the death of one sibling, potentially excluding the next generation of heirs.
Therefore, the first step in any estate planning process involving co-owned property is to determine the ownership structure. This can be done by reviewing the current deed, which is typically available from the local property recorder’s office. Once you have a clear understanding of how the property is held, you can make informed decisions about how to handle it in your estate plan.
The Importance of Estate Planning for Co-Owned Property
Whether your inherited property is held in joint tenancy or tenancy-in-common, estate planning is essential for ensuring your wishes are followed. Without a proper estate plan, the legal system may dictate what happens to your share of the property, which could result in outcomes that conflict with your intentions.
For example, in a tenancy-in-common arrangement, a co-owner’s share may be tied up in probate or seized by creditors if they pass away without a will. Even in a joint tenancy situation, where ownership automatically transfers to surviving co-owners, it’s important to plan for what happens when the last co-owner passes away.
Additionally, it’s crucial for co-owners to communicate openly about their expectations for the property. Do all the siblings want to continue co-owning the property, or is someone interested in selling their share? If one sibling wants to sell and the others don’t, what steps can be taken to resolve the situation? Answering these questions ahead of time can help prevent family disputes and ensure a smoother process if one co-owner dies or wants to exit the arrangement.
Do You Need an Estate Plan?
If you and your siblings have inherited property together, now is the time to sit down with an estate planning attorney to ensure that your wishes for the property are clearly outlined. Whether you need to create an estate plan from scratch or update an existing one, having a solid legal strategy will help ensure that the property is managed according to your goals. Schedule a legal strategy session with a qualified attorney, who can help you navigate these complexities and provide the right solution for your situation.
Proper estate planning can safeguard your family’s legacy and prevent unforeseen legal issues down the road. Whether you are dealing with joint tenancy or tenancy-in-common, taking the time to plan now can save your family stress and confusion later.
If you need an estate plan or just some updates to the plan you've already created, let's schedule a Legal Strategy Session online or by calling my Edina, Minnesota office at (612) 294-6982 or my New York City office at (646) 847-3560. My office will be happy to find a convenient time for us to have a phone call to review the best options and next steps for you to work with an estate planning attorney to get your plan prepared and implemented.
