Joint Tenancy

Joint Tenancy

The concept of joint tenancy is a little hard for some to understand. Joint tenancy is commonly defined as a vesting in which each joint tenant owns an equal and undivided interest in the whole property. Joint tenancy is most commonly used in family situations, usually between husband and wife or parents and children.

The step-up in basis is very similar to the tenants-in-common example above, but there may be a need here to allocate and deduct some depreciation from the portion
getting the step-up in basis. The primary difference between joint tenancy and tenants in common is that when one joint tenant dies in a joint tenancy, his or her ownership interest automatically and instantly vests to the surviving joint tenant or tenants.

This means that individual joint tenants aren’t able to pass their ownership by “last will and testament” to heirs or whomever else they choose. Instead, their portion of the property goes directly to the surviving joint tenant or tenants.

Many times people use a joint-tenancy vesting as an estate-planning shortcut in an attempt to pass property to heirs and avoid the expenses associated with probating an estate. Unfortunately, this seemingly quick and easy probate avoidance tool usually results in undesirable tax consequences.

When joint tenancy heirs do eventually sell the property, they pay significantly more in taxes because they received only a partial stepped-up basis. Proper estate planning can avoid probate expenses and get the full stepped-up bases.