In Michigan, as in other states, the use of joint tenancy is one way to co-own property and allow it to pass outside of probate when one co-owner dies. However, it may or may not be the best choice, depending on one’s individual circumstances.
What is Joint Tenancy?
Joint tenancy is a type of property ownership between two or more owners. It is an undivided ownership; in other words, all owners own the entire asset. Each joint tenant also has an equal interest in the property with all other owners. No one owner owns “more” of the property.
All tenants must become joint tenants at the same time, and via the same document. The right of survivorship means that when one joint tenant dies, the ownership immediately passes to the surviving tenant or joint tenants. No document or instrument, other than the deed that originally created the joint tenancy, is necessary to make this happen. A joint tenant cannot will his or her interest in the property to anyone–it will pass automatically to the joint tenant. However, the interest can be sold to another party.
Why Choose Joint Tenancy?
As noted above, a primary reason to choose joint tenancy is to avoid the probate process. Other property, such as a bank account, can also be held by joint tenancy. Another advantage of is that all owners are equally responsible for the held asset. It simplifies ownership of an asset in many ways.
Why Not Choose Joint Tenancy?
Joint tenancy may not be the best choice for everyone or in every situation. For instance, joint tenancies are irreversible, unless everyone agrees. Consider a situation in which mom and dad create a joint tenancy between each of them and their son, and mom dies, following which dad and son become estranged. The ownership and management of the property is then much more difficult.
There may also be capital gains tax implications to transferring property by joint tenancy. A property owner who acquires property by joint tenancy may pay more in capital gains taxes upon selling the property than one who inherited the property.
A joint tenant in Michigan is also legally bound to the other joint tenants. What this means is that the financial difficulties of one may become a problem for all. For instance, if a joint tenant goes through bankruptcy or is sued, their ownership interest in the property is an asset for consideration in those legal matters.
Last but not least, because each joint tenant has an undivided interest in the property, one joint tenant cannot refuse to allow another access to the property or other benefits of ownership, such as rent payments.
Consider Options Carefully
Joint tenancy has pronounced advantages as well as some severe disadvantages. Whether it is the best choice depends heavily on a number of factors. A joint tenancy is technically simple to enter into, but may be difficult to dissolve. Therefore, before choosing to become a joint tenant or to transfer property to, one should always seek the advice of a qualified Michigan attorney.