The last two weeks we have been discussing deeds and just how a small change in the words used on a deed can make a huge difference in the ownership interest conveyed by the deed.
These discussions about deeds must include a discussion about the different types of deeds, the general elements of a deed, different types of ownership interests and, if you have multiple owners of the property, a description of the rights of each of the owners. Today’s column will cover the rights of multiple owners. We will discuss tenants in common, joint tenants with and without survivorship and tenants by the entireties.
A deed to two or more individuals who are not trustees or husband and wife is considered to be as tenants in common, unless it expressly states it is to be a joint tenancy. With tenants in common, every one of the owners own a percentage interest in the property which they can transfer to anyone they choose.
Upon the death of any owner, the deceased’s interest would need to be probated and would be distributed in accordance with their will. If they do not have a will, it would go in accordance with the Michigan statute governing estates for people who die without a will.
You may have done your own quit claim deed just naming yourself and your four kids. Without any qualifying language, it is considered tenants in common with you and each kid having a 1/5 or 20% interest. Upon your death, your share would not automatically go to the kids. Your share would need to be probated.
In addition, if you ever wanted to sell your home during your lifetime, not only would you need to have all your kids sign off, you would need your sons’ wives to also sign off. This does seem kind of sexist, but in Michigan, wives have an interest in any real estate their husbands purchase during the marriage, but not vice versa.
Another downside with tenants in common property is that any of your kids as joint owner can transfer or sell their interest in your property at any time. You may find that your kids have to sell their interest in your home to satisfy creditors or pledge it as collateral for their loans. I am sure that is not what you intended when you added the kids to the deed to your home.
If instead of just adding your kids on the deed, you had named yourself and your kids as joint tenants of your home, there would be a slightly different result. If you died before all your children did, each of your children would share in your portion of your home, without probate.
There are a few twists to joint ownership that could have unintended results. With joint tenants, as with tenants in common, one of your kids could sell or transfer their interest in your home, even during your lifetime. When they do, their interest instantly becomes tenants in common property. All the remaining joint owners would remain as joint tenants. Upon your death, only the remaining joint owners would share in your 20% interest in your home. The child that transferred their interest would not get any part of your share. In that instance, the kids would not be treated the same.
If you named you and your kids as joint tenants with rights of survivorship instead of as joint tenants, there could even be a different result. As with joint tenants, upon your death, all of the kids would divide your 20% share of your home. If one of the kids transfers their interest in the property, it does not sever the joint tenancy ownership as to their interest, as in the case of straight joint tenants. When one of the kids does transfer their interest to someone else, all they are transferring is their life estate in the property and the chance that the someone else would get the whole thing if your child survived their other joint tenants. Their transferred interest continues to be governed by their lifetime.
With joint tenants or joint tenants with right of survivorship each of the owners have a right to use the property during their joint lifetime. Generally, one joint owner cannot legally keep another joint owner off the real estate. What each owner has is a joint life estate with a contingent remainder. However, with joint tenancy property, your sons’ wives generally do not need to sign off on the deed. If you wanted to sell your property during your lifetime, as with tenants in common, all the kids would have to sign off on the property before you could sell it.
I call joint tenants and joint tenants with rights of survivorship the crap shoot deed. It is kind of like a game of craps in which it is all or nothing. In the example above, if one of your children predeceases you, their heirs get nothing. And if one of your children survives all of your other children, the survivor gets the whole thing. The heirs of your other joint owner children get nothing. That’s a tough penalty. Is that something that you want to risk?
The last type of multiple ownership interest that we will discuss is tenants by the entireties. If you are married and own your home with your spouse, the likelihood is that you own your home as tenants by the entireties. Any deed transfer to a husband and wife, unless indicated otherwise, is tenants by the entireties. When the two of you own property as tenants by the entireties, it is kind of like joint ownership with rights of survivorship between spouses. Each spouse has the right to use the property during their lifetime and upon the death of one of the spouses, the other spouse owns the entire property as a matter of law without the need for probate.
I regularly see deeds that individuals or their kids have drafted that are tenants in common when they intend to be joint tenancy or are joint tenancy when they intend to be tenants in common. A deed may look simple because it is a single page document. For most people, your home is your single largest investment. Would it not be prudent that you protect that investment? The best way to protect your investment is to hire a competent legal professional to draft your deed so that you do not have unintended results.
By Matthew M. Wallace, CPA, JD
Published edited August 15, 2010 in The Times Herald newspaper, Port Huron, Michigan as: Wording important with multiple-owner deeds