Forms of Joint Ownership in New Jersey
There are three basic forms of joint ownership: Tenancy in common; joint tenancy; and tenancy by the entirety. Anyone who owns property jointly should be familiar with the consequences of joint ownership.
A tenancy in common exists when two or more persons own an undivided interest in the whole property. There is no right of survivorship in a tenancy in common. An example when a tenancy in common might be appropriate is where two individuals, A and B, want to share a vacation home. If a tenancy in common is created, in the event A dies first, his interest in the home will not be transferred to B. If A dies, his interest will be transferred pursuant to the terms of his Last Will and Testament.
Conversely, there can be a right of survivorship in a joint ownership (which is referred to as a joint tenancy). So, if A and B want the survivor to inherit the other’s interest, they should take title as joint tenants with right of survivorship. Then, if A dies first, his interest would automatically go to B.
The third type of joint ownership is tenancy by the entirety, which is only available to married couples. Just like a joint tenancy, there is a right of survivorship.
From an estate planning perspective, the principal benefit of joint tenancy and tenancy by the entirety is that it is an effective way to pass along ownership at death and avoid probate. When one owner dies, title immediately vests in the remaining joint owners; however, for married couples who own more than $ 5,450,000 in assets in 2016, there is a drawback to owning to much joint property. It may result in wasting the federal estate tax credit (known as the Exemption Amount.) Currently U.S. residents may transfer up to $ 5,450,000 in assets free from tax. Additionally, there is no limit to the amount married couples may transfer to each other.
So, if a married couple owns property in excess of $ 5,450,000 and all of their property is jointly owned, the exemption of the first spouse to die will be wasted because all of the property will pass to the surviving spouse without federal estate tax because of the unlimited marital deduction. However, when the second spouse dies, the survivor’s estate will only be able to use his or her $ 5,450,000 (in 2016) personal exemption.
Joint ownership may offer convenience; for example, an elderly parent may decide to have a child listed as a joint tenant on a checking account so that the child can assist with bill paying. However, there can be confusion as to who “funded” the account when the parent dies. In order to avoid confusion, the parent should exercise care in choosing the account format in making his/her intentions clearly known.