The term “tenants in common" (sometimes called “tenancy in common") refers to a way that state law allows two or more people to own real estate together. When owners hold title as tenants in common, they have an undivided right to occupy and use the property, but a divided interest in its value.
For example, if an unmarried couple buys a $500,000 house as tenants in common, with one person contributing 80 percent of the purchase price ($400,000), and the other contributing 20 percent ($100,000), they each have a right to use and occupy the entire house. However, the couple's ownership of the property's value—and their obligations to pay property taxes and other property-related expenses—remains at 80:20. If the couple later decides to sell the property, they would split the proceeds 80:20.
Unlike a joint tenancy or a tenancy-by-the-entireties (two other forms of title available in most states) which requires 50:50 ownership between two people, a tenancy in common can be in any percentage split.
No Right of Survivorship
There are other real estate ownership structures available under state law such as joint tenancy and tenancy-by-the-entireties that include a “right of survivorship"—meaning if one owner dies, the other owner automatically acquires the deceased owner's interest. But a tenancy in common does not include that right. As a result, each owner can transfer all or part of its partial interest in the property:
- During his or her lifetime, such as a sale to a third party
- After his or her death to heirs named in a will
To sell the entire interest in a tenancy in common property, all of the co-owners must sell their individual partial interests to the same buyer.
Disadvantages of Transferring TIC Property in a Will
Because tenancy in common lacks a right of survivorship, if one of the owners dies, the partial property ownership interest transfers to the heirs named in the deceased owner's will. If the owner dies without a will, the property interest goes to the heirs determined by the laws of intestacy in the state where the property is located. Speaking to an attorney can help you navigate property ownership in your will.
There are a few potential downsides to transferring a tenancy in common property in a will:
- The property transfer must go through the probate process which causes delays.
- The probate process exposes the property to the deceased owner's creditors. For example, if the decedent died with debts that cannot be repaid with other estate assets, the creditors can place liens on the deceased owner's portion of the property to secure the unpaid debts.
- If the decedent has not named the surviving owner as the inheritor of the partial property interest, the surviving owner suddenly has one or more co-owners that weren't anticipated when the property was originally purchased.
- If the property is residential and the surviving owner lives in it, the new owners have the legal right to move in.
- Even if the owner names his or her spouse as the inheritor of the decedent's property interest, the transfer must go through probate.
- If the heirs to the deceased owner's interest in a residential property are not the other tenants in common, they have inherited a property interest that is inherently reduced in value because the other tenants in common continue to have a right to live in the property.
An executor does not have the power to liquidate the decedent's partial property interest to generate cash for the estate unless the buyers are the other tenants in common, or if the other tenants in common also agree to sell their interests to a third party.
Advantages of a Right of Survivorship
If two or more people own property in a title structure that includes a right of survivorship, many of the downsides of tenancy in common are avoided:
- Property transfers by right of survivorship do not go through the probate process but by law take place automatically without the need for transfer documents such as a deed. The deceased owner's property interest is not considered part of his or her estate.
- The property is not subject to the creditors of the deceased owner's individual debts (meaning the debts not held jointly with the surviving owner). However, jointly held debts secured by the property (such as a mortgage) continue in effect even after an owner's death.
A tenancy in common can function similarly to a right of survivorship if the deceased owner names the other tenant in common as the inheritor of the partial property interest, but the transfer must still go through the probate process with an executor formally making the transfer.
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