What is Joint Tenancy with Rights of Survivorship (“JTWROS”)?
Joint tenancy with rights of survivorship (JTWROS) is a type of property ownership where two or more people hold property together with equal rights and responsibilities. In Phoenix, joint tenancy is most commonly seen in real estate, but JTWROS can also be used with personal property (bank accounts, cars, etc.). Joint tenancy with rights of survivorship differs from community property with rights of survivorship, which is available to married couples living in Arizona.
Four requirements must be present to allow individuals to hold the title as joint tenants with rights of survivorship in Arizona:
- Unity of time – the joint tenants must take possession of the property at the same time.
- Unity of title – the joint tenants must take the title by the same document (i.e., a deed or will).
- Unity of interest – each joint tenant must have an equal interest in the property. It does not matter how much each party financially contributed to the purchase of the property.
- Unity of possession – each joint tenant has the right to possess the entire property, even though they do not have a 100% ownership interest.
These four requirements are known as the “four unities.” The rights of survivorship means that the property transfers automatically from the moment of death to the surviving owner when the joint tenant dies. The surviving owner immediately owns 100% of the property. For example if you and your spouse are joint tenants of a car, if you pass away, your spouse now owns the car 100%.
What are the Benefits of Joint Tenancy with Rights of Survivorship in Phoenix?
The main benefit of a JTWROS is that it simplifies the transfer of property when one owner dies. The property transfers automatically and avoids probate. Most financial institutions simply require a copy of the death certificate to transfer ownership.
Avoiding probate has many benefits, including:
• Lower costs – Probate can be an expensive process. Families can end up paying hundreds to thousands of dollars in court costs, attorney fees, accounting expenses, and other related costs.
• Saves time – Probate can take months and sometimes years to be finalized. There is no waiting period for the transfer of joint property.
• Privacy – Probate proceedings become public records. Property transferred outside of probate stays private.
What are the Drawbacks of Joint Tenancy with Rights of Survivorship in Phoenix?
There can be drawbacks to JTWROS so it is not the best option for every situation. For example:
• Loss of Control – Each joint tenant must approve any financial decision regarding the property. If one of the joint tenants wants to sell their share of the property, refinance, or take out a second home loan, they need the consent of all other joint tenants. This becomes a problem if there is a conflict between the parties or a joint tenant becomes incapacitated, and the other joint tenant is not named their agent on a financial power of attorney.
• Unintended Consequences – Joint tenants do not have the ability to give their share to any beneficiaries in their will or trust. It must transfer to the surviving owner, regardless of any language in the will.
• Tax Consequences – If you sell a property that was held in joint tenancy with a deceased person, you will have to pay capital gains tax on the profit. Additionally, when you create a joint tenancy with someone other than your spouse, you will have to pay gift tax on anything over the gift tax exclusion ($16,000 per year as of 2022).
• Creditor Claims – Property held in JWTROS is not protected from the judgment of creditors on the owners. A creditor can place a lien against a debtor’s portion of the property. The creditor can sell the debtor’s interest without involving the other tenant.
• Only Delays Finally, it only serves to delay probate. After the sole surviving owner dies, the property will pass through probate. Likewise, if both joint tenants die at the same time, the property will still pass through probate.
If you are considering creating a joint tenancy with rights of survivorship, you should speak to a qualified Phoenix estate planning attorney. Because of the disadvantages listed above, it may or may not be the best option for you.
Your Phoenix Estate Planning Attorney
Nicole Pavlik is an experienced Phoenix estate planning attorney who can help you create a comprehensive estate plan. If you have questions about joint tenancy with rights of survivorship and estate planning, call Nicole Pavlik Law Firm today at (602) 635-6176 for a free consultation.