Lots of people own their homes as joint tenants. Usually, this is because when they bought their house the title company suggested that they hold title this way. Sometimes, two people who aren’t married buy propery together and hold it as joint tenants as well.
Joint tenancy, though ubiquitous, isn’t always the right way for two people to own property together and sometimes it can have really unfortunate consequences. If you are a married couple, holding property as joint tenants can result in unnecessary capital gains taxes if the property is sold after one person dies. If you are two unrelated parties, holding property as joint tenants may mean that the property won’t pass as you intended it to pass after your death.
What joint tenancy means, legally, is that both tenants own an undivided fifty percent of the property and that if one joint tenant dies, the surviving joint tenant owns the entire property by right of survivorship. This right of survivorship happens automatically by operation of law upon the death of the first joint tenant. No probate is required to transfer the property, which is why title companies encourage home owners to take title in this way.
But if two people buy property together and either own unequal shares of that property or would like the right to leave their share of that property to someone else at their death (or both) joint tenancy is not the right way to hold title. In that case, they need to own the property as tenants in common. This means that, upon the death of one owner, his or her share will pass by will or trust to another person. In the case of a will, a probate will be required to pass the property to the beneficiary; in the case of a trust, no probate will be necessary, and a trust transfer deed will be what’s needed to transfer the property.
If you own property as a joint tenant and discover that you do not want the other joint tenant to own the whole property at your death, you can sever that joint tenancy and create a tenancy in common by recording a deed that changes the way your interest is held, even without the consent of the other party.
If you are a married couple and would like to avoid extra capital gains upon the sale of your property after one person dies, you can hold title as community property with right of survivorship. When held in this way, the property will still automatically pass to the surviving person, but he or she will get a full step-up in basis on the property after the first death.