Tenants in common vs joint tenants: why ownership matters for estate planning

How you own your property can affect what happens to it when you pass away. The key difference between joint tenants and tenants in common is not just about ownership during your lifetime — it can also have a significant impact on your estate planning.

What is the difference?

Joint tenants means two or more people own the property together as a whole. For example, it is common for married couples to own their home as joint tenants.

Tenants in common means two or more people own the property in defined shares. Those shares may be equal, such as 50% each, or unequal, such as one owner holding 30%, another 10%, and another 60%.

Why does ownership matter?

From an ownership perspective, the distinction can matter because one party may have invested more into the property and therefore may own a larger share. However, what people often do not consider is how that ownership structure affects their estate planning.

What happens if a joint tenant passes away?

A property owned as joint tenants is commonly owned in one of two ways:

• by two or more people personally; or
• by the trustees of a trust, as joint tenants.

If a property is owned by two people personally as joint tenants, and one of them passes away, the property automatically passes to the surviving joint tenant. This happens regardless of what the deceased person’s Will says.

If the property is owned by the trustees of a trust and one trustee passes away, the property remains owned by the trust. Who steps into the role of the trustee who has passed away will depend on the trustee’s Will and the trust documentation.

What happens if a tenant in common passes away?

If a property is owned as tenants in common and one of the owners passes away, their share does not automatically pass to the surviving owners. Instead, their share forms part of their estate.

For example, if someone owns a 50% share in a property and then passes away, the person they have gifted that share to under their Will, will receive that 50% share.

If the person who passed away did not have a Will, the Administration Act 1969 will determine what happens to their ownership share.

In either case this means the remaining owners have no say in who becomes entitled to that share.

Which ownership structure may suit your intentions?

It is important to ensure the ownership of any property you have is set up correctly. If you want your estate to be simple and for the property to pass directly to your surviving spouse, a joint tenancy may be the right choice for you.

If you have children from a previous relationship and want them to receive your share in the property when you pass away, it may be important to own the property as tenants in common and specify in your Will who you would like to receive your share.

Consider a property sharing agreement

If you own property as tenants in common, it is also worth considering a property sharing agreement with the other owners. This agreement can set out what happens if one of the  owners pass away, including whether the other owners must purchase that person’s share from their estate.

It can also set out what rules a beneficiary of the estate must comply with if they become a shared owner of the property.

Key takeaway

The key to this is simple: make sure your ownership structure reflects your intentions. Whenever you purchase or acquire property tell your solicitor what you want to achieve, so they can ensure it is documented correctly.

The more you organise now, the less your family has to deal with when you pass away. Keep things simple by getting your solicitor to deal with the complicated parts while you are still here, so your family can focus on what is most important when you are not.

If you already own a property and would like some advice regarding ownership, or if you are looking at purchasing a property and want to discuss your options – get in touch with one of our property specialists today.

This article is current as at the date of publication and is only intended to provide general comments about the law. Harkness Henry accepts no responsibility for reliance by any person or organisation on the content of the article. Please contact the author of the article if you require specific advice about how the law applies to you.