How property is owned matters, especially when it comes to estate planning. In some states, owning property as tenants in common is the default ownership method.
There are a number of different ways to own property. If you own property in Oklahoma, for instance, just titling it “joint ownership,” the form of ownership will be as a tenant in common. Other ways to own property include as an individual, and as joint tenants with right of survivorship (JTWROS).
The Pauls Valley Democrat says in its article “How to title your property as tenants in common” that ownership as a tenant in common provides an undivided interest in the whole property (i.e., an undivided one-half, one-third, etc.). This interest in property stands on its own and can be bought and sold. This form of title is the best option for two or more people who want to keep their title separate during life and after death.
In practice, this ownership is a bit theoretical because an undivided interest provides a partial ownership of the entire property—but not a total ownership of any part of the property. Therefore, an undivided one-half owner has the right to use the entire property, including the right to benefit from one-half of the rent, lease, or crop share.
When several individuals own an undivided interest, the control, usage, and management can become complex and troublesome, especially when one of the co-tenants spends their own money to improve the property, which benefits the other co-tenants.
Tenancy in common offers a benefit because the interest is transferable and can be sold or otherwise transferred, without affecting the other owners. However, the value of a partial ownership is decreased in value, because of the potential limitations on sharing with the other owners.
The following is an issue that can occur, if a husband and wife own their property as tenants in common. If one spouse dies, his or her undivided interest remains as a part of the estate. As a result, his or her estate has to be probated for a clear transfer of title to the surviving spouse or to other heirs. It’s an expense for the survivor that could have been avoided, if another form of ownership were implemented.
Another thought with co-tenancy is a debt of one of the co-owners. The death of one of the co-tenants does not terminate the ability of his or her creditors to file a claim against the property as a part of a probate. Each owner has the right to sue to split the property in a suit for partition, and the other owners may at any time face such action.
This presents a host of legal and financial problems. It’s usually impossible for real property to be divided in equal portions. What usually occurs is that the court sells the property and the parties divide the proceeds of the sale. This is rarely what anyone wants, especially if the property was a beloved family home.
Talk with an estate planning attorney about how to title the ownership of the property, how to align that ownership with the overall goals of the estate and spare your family the cost and heartbreak of having to resort to a court-ordered sale.
Reference: Pauls Valley Democrat (October 2, 2019) “How to title your property as tenants in common”