Tenancy in common and joint tenancy are two types of joint ownership models for holding assets. The major differences between the two are how the jointly held asset is owned during the life of the owners and how the asset transfers upon death.
| Tenancy in Common | Joint Tenancy | |
|---|---|---|
| # of Owners | 2+ | 2+ |
| % Ownership | Any | Equal shares |
| Freely sell share during life? | ✔ | ✔ |
| Equal usage rights during life? | ✔ | ✔ |
| Ownership transfers via estate plan upon death | ✔ |
For assets held by tenancy in common, each owner holds a fractional interest in the asset, which may be in equal or unequal shares and is usually based on the amount of capital contributions each owner invested acquiring in or maintaining the asset. Co-owners holding assets by joint tenancy, on the other hand, each own equal interests in the asset, regardless of whether they contributed different amounts to it.
When one owner of a tenancy in common asset passes away, the deceased owner transfers his or her ownership share through the deceased owner’s estate plan. By contrast, a deceased owner’s share in a joint tenancy passes automatically to the other co-owners.
Is it better to hold assets by joint tenancy or tenancy in common?
Choosing to hold assets by joint tenancy or tenancy in common is a matter of personal preference.
For non-married joint owners, tenancy in common is by far the more popular joint ownership model for three reasons:
- Tenancy in common often reflects differing capital contributions as different ownership percentages
- During the lifetime of the owners, tenancy in common provides each joint owner flexibility in the right to freely sell, lease, or transfer his or her ownership interest without the consent of the other owners
- Upon death, tenancy in common enables each joint owner to transfer his or her interest to whomever the deceased joint owner chooses
Incorporating tenancy in common and joint tenancy assets in an estate plan
Assets held by tenancy in common do not feature built-in transfer mechanisms. Therefore, tenancy in common assets need to transfer through the estate plan. You can transfer tenancy in common assets by either a specific gift or as a residuary or remainder gift.
- A specific gift explicitly names the asset in the last will or revocable living trust and the beneficiary to whom the asset should be distributed.
- A residuary or remainder gift distributes the asset as one among of pool of other ‘leftover’ assets in the manner prescribed in the residuary portion of the last will or the remainder distributions in the revocable living trust.
Assets held by joint tenancy have built-in transfer mechanisms. Therefore, you typically do not include these assets in your last will or revocable living trust, because the asset will instead pass to the other surviving joint owner(s) upon your death automatically.
