or the property may be converted into “tenants in common” property, with each party owning a particular portion. The court’s division of the percentage of ownership does not necessarily have to be equal. Even if the court does not specifically deal with joint property, the type of co-ownership may be changed as a result of the divorce. Does co-ownership reduce death taxes? The answer to this question is generally that it does not. Each person’s particular tax situation is so different that specific answers cannot be given, and sound legal advice should be sought if the party suspects he or she may have a death tax problem. This area of the law is frequently changed, and anyone who suspects that he or she may have a death tax problem should review his or her particular situation from time to time. As a general rule, as described earlier, there are no death taxes for property passing from one spouse to another. This is true regardless of whether the property is held in some form of co-ownership, or is held by the individual. However, even in this instance, it should be noted that there may be a substantial tax liability upon the death of the surviving spouse, and it is that element of taxation that should be examined closely. For people who are not married, joint tenancy with right of survivorship will not normally save any death taxes, since the co-owner who actually purchased the property will be taxed on it at its value at the time of death. A tenant in common interest will be taxed to a deceased co-owner to the extent of his or her interest in the co-owned property. Does joint tenancy save probate expense? In some cases. However, if a deceased person owned property other than that held in joint tenancy or tenancy by the entirety, the other property must be probated just the same. There also may be some expense in perfecting the record title to the property after the death of each coowner. If there were no property other than joint tenancy or tenancy by the entirety property, and if there were no taxes to be paid, it is probable that joint tenancy or tenancy by the entirety property would save some probate expenses in most circumstances. However, in order to
achieve such savings, the deceased joint owner had to relinquish control over the disposition of the co-owned property. In the long run, doing so may prove to have been very expensive. If co-owners die simultaneously (as in an accident), what happens to their joint tenancy or tenancy by the entirety property? Without a Will containing a “survivorship clause”, by statute in Indiana, the property is divided equally between the co-owners’ estates, and probate proceedings are then required to pass the property on to the devisees or heirs of each coowner. Is co-ownership ever advisable? Co-ownership is advisable in some circumstances, but only after careful consideration of all the circumstances of the particular case, and only after review of possible future events which may affect the co-ownership. What are the special rules regarding co-owned bank accounts? Co-owned bank accounts are referred to in Indiana as “multi-party” accounts. The rules, which are complex, define the rights of parties in multi-party accounts. Generally, if you place another person’s name on a bank account, it is very likely that if you die first the other person will be entitled to the entire remaining balance in the account on your death, even if that was not your intention. Another person’s name should not be added to your bank accounts as a co-owner “for convenience”, for example as in the case where you fear you may become disabled or unable to handle your affairs. That other person would be entitled to the entire account upon your death in most circumstances. It would be better, in most circumstances, to give that person signature authority, or a power of attorney, over the account. If you have a question about the effect of any multi-party bank account that you may create, you should not rely upon the opinion or advice of a bank teller as to the legal effect of that account. Rather, you should consult a lawyer.
All inquiries regarding the reprinting or distribution of this brochure should be addressed to the Indiana State Bar Association, 230 East Ohio St., Indianapolis, IN 46204, (317) 639-5465. 1/2001
Joint Tenancy Real and
Personal Property
Provided in the Public Interest by the Probate, Trust & Real Property Section of the Indiana State Bar Association
This pamphlet based on Indiana law is issued to inform, not to advise. No one should try to interpret the law without the aid of a lawyer who knows the facts, since the facts may change the application of the law. What is joint tenancy? Joint tenancy is but one of three common ways of holding title to personal property or real estate by two or more persons. Each of these three types of co-ownership has a specific legal meaning and effect. These three types are (1) “as joint tenants with right of survivorship”; (2) “as tenants in common”; and (3) “as tenants by the entirety”. A general explanation of each of these types of co-ownership is as follows. The first type (as joint tenants with right of survivorship) means that upon the death of a coowner his or her interest in the property passes automatically to the surviving co-owner(s). The second type (as tenants in common) means that each co-owner has a specific portion of the ownership and, upon the death of one of the owners, the share of the deceased co-owner passes to his or her heirs, either by law or as directed in his or her Will. The surviving coowner(s) may not necessarily be the one(s) who inherit(s) the portion belonging to the deceased co-owner, since this form of co-ownership has no “survivorship” feature. The third type (as tenants by the entirety) has survivorship features, and is similar to the first type, except that it applies only to husbands and wives and (in Indiana) only to real estate. When the first spouse dies, the surviving spouse receives the entire property. Why do many property owners favor joint tenancy? Many people think the “survivorship” feature will save the surviving co-owner(s) probate costs and inheritance or estate taxes. This is not necessarily true. Some small probate costs may be saved, but other expenses such as attorney fees and transfer fees may not necessarily be avoided. Placing property in joint tenancy with other persons does not save taxes in most cases. The person who owned the property will be taxed to the extent of that person’s ownership. However, there is no inheritance or estate
tax due on property passing from one spouse to another, but this is true whether the property is co-owned or whether it is held by the individual. Is co-ownership a good substitute for a Will? Usually not. While it is true that property held in joint tenancy with right of survivorship or in tenancy by the entirety will pass to the other coowner(s), and will not be affected by a Will, such is not always desirable. A tenant in common’s undivided interest, without a Will, will pass to that person’s heirs. Even when a person is in full agreement with the results of co-ownership, there usually are other reasons for a person to have a Will. A properly drawn Will covers a number of items in addition to passing property, such as naming a person to handle the estate, naming a guardian for minor children, making specific bequests, seeing to it that children receive equal shares, etc. The concept of coownership may be appropriate at one point in time, but may change with circumstances at a later date. You should keep in mind, however, that a Will can be easily changed, whereas coownership frequently is difficult (and sometimes impossible) to change. Additionally, co-owned property does not necessarily pass “automatically” at the death of a deceased co-owner, and therefore there will be certain costs and expenses associated with the transfer of that property. Why is co-ownership difficult to change? A change in co-ownership frequently requires the consent of all of the co-owners. Co-ownership with regard to real estate may be impossible to change if the property is held as joint tenants with the right of survivorship, or as tenants by the entirety, if a co-owner refuses to consent to the change. Real estate held as tenants in common may be changed, but if a co-owner refuses to consent it may require court proceedings to obtain the change, and in some cases it may force a sale of the property. Co-ownership with regard to personal property is not necessarily as hard to change, but can be in some circumstances. If the property is some type of bank account, there are special rules for how those accounts can be changed and under what circumstances.
Can your creditors reach co-owned property? Your creditors can reach co-owned property in many circumstances. This is true whether it is personal property, such as bank accounts, or whether it is real estate. There are certain exceptions, one being that creditors of only one spouse cannot reach real estate held as tenants by the entirety by both spouses. In addition, if one spouse files bankruptcy, creditors cannot reach real estate held as tenants by the entirety in that circumstance. Property held as tenants in common may always be reached by creditors, to the extent of the ownership of the particular coowner. What are some common dangers in co-ownership? One danger is that co-owners may disagree. When there is a disagreement, it may become difficult to make such necessary decisions as those concerning management, repairs, division of income from the property, public liability problems, insurance, and so forth. Another danger often found associated with coowned bank accounts can occur when a person creates several bank accounts jointly with his or her children, thinking that the aggregate value of the accounts will be divided equally among the children upon the person’s death. The person creating the accounts originally creates equal bank accounts, but after creating the accounts the person finds he needs money for medical expenses or other items, and at the death of that person it turns out that the accounts are no longer equal. Usually, by operation of law, the accounts cannot be equalized, but each child or surviving co-owner will take only what is left in the respective joint bank account with that child’s or co-owner’s name on it. This may be contrary to the intention of the person who created the accounts. What happens to property co-owned by spouses in case of a divorce? If the parties cannot agree upon a split of the property between themselves, the court has the right to apportion the property as it determines. The court may order the property sold and the proceeds distributed according to some formula,