What is Consideration for a Deed to Real Estate?
There are several ways that multiple owners can hold title to real estate. These forms of co-ownership include tenants in common, joint tenants with right of survivorship, tenancy by the entirety, and community property. The form of co-ownership should be specified on the deed to the property. It is important to select the right form of co-ownership for your situation.
Overview of Co-Ownership of Real Estate
When more than one owner is listed on a deed to real estate, each owner has specific legal rights to the property. The exact nature of those rights depends on the form of co-ownership.
If all of the owners are people (i.e., not businesses or trusts), the owners may choose whether to hold title as either tenants in common or joint tenants with right of survivorship. Both of these forms of co-ownership are available for all co-owners, regardless of marital status.
Special forms of co-ownership that are available only to married couples. Marital property rights depend on whether the state is a community property state or a common law state.
- Community Property States – In community property states like California and Texas, married couples can hold title as community property. As discussed below, community property may be held with or without rights of survivorship.
- Common Law (Separate Property) States – In common law states like Florida, spouses may hold title as tenants by the entirety.
Tenancy in Common
A tenancy in common is a form of co-ownership with no survivorship rights. When multiple owners hold title as tenants in common, each owner’s interest becomes part of his or her probate estate at death. It does not pass automatically to the surviving owner or owners.
Example: If Peter and Paul own real estate as tenants in common and Peter dies first, Peter’s interest will not pass to Paul. Instead, it will pass to Peter’s probate estate. If Peter has a will, Peter’s interest will pass to whoever inherits under Peter’s will. If Peter does not have a will, the property will pass to Peter’s heirs under the intestacy laws of the state where the property is located.
Tenancy in common is the default form of co-ownership in most states. A deed to two or more persons is presumed to create a tenancy in common unless the deed specifies otherwise. To avoid any doubt, it is good practice to specify the exact form of ownership in the deed when the property is conveyed.
Tenancy in common is a good choice when the parties do not want the surviving owners to inherit a deceased owner’s interest. A tenancy in common ensures that each owner’s interest passes to his or her heirs instead of to the surviving co-owners. But because the deceased owner’s interest becomes part of his or her estate, probate may be required to transfer the interest to the deceased owner’s heirs.
Joint Tenancy with Rights of Survivorship
Joint tenancy with right of survivorship (sometimes referred to by the acronym JTWROS) includes survivorship rights. This means that, on the death of one of the owners, the property will pass automatically to the surviving owners. Survivorship rights avoid probate in the deceased owner’s estate.
Example: If Peter and Paul own real estate as joint tenants with right of survivorship and Peter dies first, Peter’s interest will pass automatically to Paul upon Peter’s death. There is no need to probate Peter’s estate. Peter’s interest will pass to Paul and not to Peter’s heirs, regardless of whether Peter has a will. This effectively disinherits Peter’s heirs in favor of Paul.
Survivorship rights continue until the last surviving owner owns the entire property. At the death of the last surviving owner, probate may be needed to pass title to that owner’s heirs.
Joint tenancy has traditionally required four unities of title. This means that all of the following must occur for a joint tenancy to exist:
- The joint tenants’ interest must all begin at the same time;
- The joint tenants must all receive the same interest;
- The joint tenants must all receive title in the same deed or other instrument; and
- All joint tenants must have equal right to control and possess the property.
These requirements are satisfied in a deed that conveys property from the transferor to other owners with the special language required to create a joint tenancy with right of survivorship. If the existing owner will continue to own the property after the conveyance, see our discussion of Unities of Title and Strawman Conveyances in our article of How to Add a New Owner to the Title Deed to Real Estate for more information.
A break in any of the four unities of title can destroy the joint tenancy. If, for example, one of the owners transfers his or her interest to someone other than one of the co-owners, the person who receives the property from the joint tenant will become a tenant in common with the other owners.
Joint tenancy with right of survivorship is a popular form of ownership in the family setting. Parents sometimes name their children as joint tenants with right of survivorship with the intent that the property remain in the family upon each child’s death. This can avoid the need to probate the property in each child’s estate and keep the property within the family line. But it also benefits the last surviving child to the exclusion of any grandchildren of predeceased children.
Community Property (Married Couples Only)
There are nine community property states in the United States. These states, which include Texas and California, allow spouses to hold title as community property. This form of co-ownership treats the spouses as a single economic unit and has important tax benefits. See our articles on Texas Community Property and California Community Property for more information about Texas and California community property law.
Community property may or may not include a right of survivorship. A right of survivorship means that a deceased spouse’s interest passes automatically to the surviving spouse upon the deceased spouse’s death. If the spouses do not have children from outside the marriage, they will often want to include survivorship rights in order to avoid probate. If the spouses have other children, they may prefer not to include survivorship rights so that the interest of each spouse can pass to his or her respective children.
If the spouses intend to create a right of survivorship, the deed should include the specific language needed to create the right of survivorship. In some states—like Texas—additional agreements may be required to create the survivorship rights.
Tenancy by the Entirety (Married Couples Only)
A tenancy by the entirety is a special form of joint ownership available only to spouses in common law states (like Florida). It is similar to a joint tenancy in that it provides each spouse a right of survivorship. On the first spouse’s death, the property will automatically pass to the surviving spouse. See our article on Florida tenancy by the entirety for more information.
Joint tenancy with right of survivorship and tenancy by the entirety both include survivorship rights. But there are often other benefits—such as asset protection—that make tenancy by the entirety the preferred form of ownership between spouses. Under the law of many states (including Florida), a judgment against one spouse is not enforceable against property that is owned as tenancy by the entirety. This protects the property from creditors of one spouse.
Marriage is an essential element of tenancy by the entirety. If the spouses divorce, the form of co-ownership converts to tenancy in common. After the divorce, each spouse will own the property as tenant in common with the other spouse.
Most real estate attorneys assume that a husband and wife intend to take title as tenants by the entirety and will deed the property that way by default. But this may not match the intent of the married couple, especially if there are children from a prior marriage. Because property owned in tenancy by the entirety passes automatically to the surviving spouse, the spouses may unintentionally disinherit children from a prior marriage.
A Note on Life Estates
This article deals with concurrent ownership. Concurrent ownership means that the people all have possessory rights to the property at the same time. Life estates are another form of co-ownership. But unlike concurrent ownership, the life tenants and the remainder beneficiaries own their interest at different points in time. See What is a Life Estate? For more information about life estates.