There are many things you should consider when you are purchasing property with another person. One of these things is called the right of survivorship. Right of survivorship can impact what happens to a property if one of the owners passes away before the other one. It is important to understand how this right works and how it can impact various facets of your life and the lives of other people around you. There are many things that can directly impact how right of survivorship is handled as well as ways to include or exclude it from agreements based on situations. Knowing what the law says about this component of purchasing property and how it is handled in specific situations is key. This article can help you better understand all aspects of rights of survivorship.
You are likely wondering what right of survivorship is and how it can impact you if you are purchasing a property with another individual or individuals. Right of survivorship is an attribute of many types of joint property ownership today. However, it can impact joint tenancy and tenancy in common differently, which will be detailed in a later section. The way that the right of survivorship works is that if a property is purchased and owned by two or more individuals and the right of survivorship has been included in the title to the property, then if one of the owners dies, the surviving owner or owners will absorb the share for the deceased's share of the property automatically. This continues on until there is only one owner remaining. At this time, the last remaining owner would own the property completely and would be able to do as they wish with it in their will. For example, if two people, Mark and Amanda, own a property together and Mark dies, then Amanda will become to sole owner of the property even if this is not detailed in the will because the two of them purchased the property together. How wills are impacted will be discussed in a later section.
The reason these types of agreements have been created and are put into place with joint purchases is usually so that the ownership of the property can be preserved among the owners. This ensures that the property remains with a specific group of individuals or entities and there is no option for it to be given elsewhere unless this is explicitly changed by the owners. It is commonly used to ensure that surviving parties can keep the property if they are a joint owner and the other owner becomes deceased. This is when a deed with the right of survivorship is most commonly used, with the ultimate goal to ensure that the distribution of the property is equitable. It is also sometimes used for business purposes to ensure that it stays with the company for the purposes of the business. Some entities may purchase the property and use the right of survivorship to ensure that the property remains with the entity until it is sold at a later date. This is a smart business move for many companies, especially if they are interested in maintaining the property for many years or generations to come, which is why it has become a very popular approach in business estate planning.
In joint tenancy situations, you will find that right of survivorship will apply in most cases. One thing to note, though, is that right of survivorship does not always have relevance for tenants in common because in this case, each party would not have the same interest. There is a main difference between joint tenancy and tenancy in common that changes how things are divided in case an owner passes away. With joint owners (otherwise known as joint tenancy), when one owner dies, the deceased individual's interest goes to the remaining owners. However, with tenancy in common where each party has their own transferable interest in the property by design, there is no legal framework that requires this to happen. In fact, with tenancy in common, the tenants can distribute the property shares to their heirs as they wish. This could be placed in a will and that would dictate how the property would be dispersed. Due to this drastic difference, many business partners are advised by their legal counsel to only use joint tenancy agreements so that the ownership is not completely shifted to other parties if one owner passes away. This can ensure continuity and exclusivity of ownership.
Right of survivorship applies to community property in most circumstances. This is important to note for any arrangements that are between spouses as it can have a direct impact on spouses who bring in separate real property holdings to their marriage. This type of property is considered to be separate property because it was originally purchased by one individual prior to the marriage. Community property is defined as property that was purchased during the marriage and is therefore defined as property owned by each party even if both names are not on the title. This distinction can impact a surviving partner directly because properties that are considered to be separate property are not automatically transferred to the surviving spouse in case one of them passes away.
There are some states that have a broader definition of community property, but in the majority of states, this definition holds true. If the spouse wants the property to include right of survivorship, they must change this de facto arrangement. This is done on a case-by-case basis and must be actively added through court and included in the property owner's will. However, with jointly held properties, right of survivorship is automatically applied without any action being taken on either of the parties involved.
For most survivorship arrangements, you will see that estate taxes are generally applied, meaning that the survivor who gets the portion of the property will have to pay taxes on the value of that portion. This is true for right of survivorship arrangements as well. In this case, if the property is large enough to qualify for an estate tax, then the surviving owners are impacted directly and they will need to figure out how to pay for this estate tax. They will also be held liable for any proportional shares of the bill. It is important to know that as part of the survivorship arrangements, there are increased ownership shares in real property for the survivor. This means that the financial benefits of the estate tax will likely outweigh the negative components of the estate tax and it is something that many survivors tend to view as something that can be handled in order to ensure the entire property remains with them. In the end, once the estate tax has been paid, the survivor will have a much more rich property value because they will own it in its entirety.
Something to keep in mind is that the estate tax exclusion limit is set at $5 million in the current market and this only covers a small portion of current U.S. properties, so many of them are not included in this exclusion.
Right of survivorship is not always the best situation for many people and someone may wish to make changes based on their individual situations. In fact, there are many different situations that would make sense for avoiding it. One example of this would be if an individual would like to bypass their spouse for survivorship and transfer the property directly to their descendants instead. In order to do this, they would have to avoid deeds with the right of survivorship to detail this. Also, you would need the agreement of your spouse to do this. However, in most of these cases, this is something that both spouses agree upon.
Another example is if business partners would like to pass it on to their heirs instead of their business partner if they pass away. The reason people want to do this is so they can leave even more to their heirs to help take care of them if they were gone. In order to do this, they would have to work out a tenancy in common arrangement with their business partner. Additionally, they would have to add non-survivorship stipulations to the joint tenancy contracts that they draw up. While this can definitely can be done, extra steps are needed to make it happen. Additionally, it is important to understand that positive actions are needed to avoid survivorship transfers under the default state laws. You will need to check with your state laws to see how this can impact you and what additional steps are needed in these types of cases.
Just like there are situations where someone may want to alter their right of survivorship for various reasons, there also may be reasons for someone to terminate their right of survivorship altogether. This can happen if one of the owners decides to sell their share of the property. They can sell it to the other owner(s) or they can sell it to another outside partner if it is agreed upon by the remaining owner or owners.
In order to do this, the owners would have to go to their local court. In the court, the property being sold would be divided equally amongst the other owners based on the purchase agreement. If the goal is to sell it to another individual outside of the other original owners, the buyer of the portion of the property would have to be converted to a tenant in common with the remaining original owners. With this type of arrangement, the buyer would still be able to use the entirety of the property. However, the buyer would not have any right of survivorship like the seller, and the buyer would also be able to sell their portion of the property whenever they wished to do so. The original owners, minus the one who sold their share, would still have the right of survivorship intact for the property with the other remaining owners. Once there is only one original owner remaining in the group, then that owner would then have a shared title with that purchaser. The purchaser would still remain as a tenant in common.
Both wills and right of survivorship deal with what happens to property after an owner passes away. However, what happens if they do not have the same directions in them? Which one will take precedence over the other? In most cases you will find that property that is included in right of survivorship is not included in a last will because it is not subject to inclusion in the nature of right of survivorship. However, there are some instances where it can be subject to a will. One example of this is when a property loses its survivorship status, which can happen if one of the joint owners has already passed away and it now remains in the sole ownership of one individual. This can also depend on the state in which the property is located because state laws can vary. You will want to check with the local laws and a licensed attorney to be sure on how this impacts your property. However, what if it is included in a will and there is an active right of survivorship clause for the property? In this situation, then the property would be distributed based on the right of survivorship clause and the will would not be taken into account.