A joint tenancy is a legal way for multiple people to own a single parcel of real property. Joint tenancy is the preferred method of co-ownership because it provides significant benefits upon the death of one of the co-owners.
"Joint tenancy with right of survivorship" is a legal phrase that describes a way for two people to co-own a single piece of property. For example, most spouses own their home as joint tenants with right of survivorship. Basically, joint tenancy with right of survivorship means that if one tenant dies, the surviving tenant automatically becomes the sole owner of the property.
When one joint tenant dies, full title to the real estate automatically vests in the surviving tenant. No paperwork is necessary, and the surviving tenant does not have to take any legal steps. The shift of ownership is easy, seamless and automatic.
One of the great benefits of a joint tenancy with right of survivorship is that the property does not have to go through probate. Probate is the legal process that occurs when one person dies, and a court deals with that person's property and debts according to a will or, if the person had no will, state law. Probate is often annoying and time-consuming. Joint tenants, however, do not have to go through probate for their property because the transfer of ownership is automatic.
Another great advantage of holding property as joint tenants is that no taxes need to be paid on the property. There are two types of taxes that are avoided by joint tenancy. The first is the federal estate tax, which taxes an entire estate if the estate is large enough (as of 2009, at least £2.3 million, and as of 2011, at least £0.6 million). Some states also impose a death tax, which is similar to the federal estate tax. Additionally, joint tenants also avoid inheritance taxes, which are different than estate and death taxes. Inheritance taxes are taxed to the person who receives property from an estate, while estate taxes are taxed to the estate before any inheritances are given.
While creating a joint tenancy may be a good way to avoid probate and taxes, there are a few drawbacks. For example, once you create a joint tenancy, you have given up exclusive ownership of the property, and you can't get it back unless the other owner gives it to you or dies. Also, if you give a joint tenancy to somebody other than your spouse, you may have to file a gift tax return and pay gift tax.