When purchasing a property one of the most important questions you will need to ask yourself and put your mind to is the way you would like to own the property. There are four main forms of ownership. These include sole proprietorship, joint tenants, tenants in common in equal shares and tenants in common in unequal shares. The choice you make in ownership will affect your estate planning, so it is important to obtain legal advice.
Sole proprietorship is quite straightforward, this is when you own property solely in your name. The other forms of ownership are not as simple, and these will be further explained below.
When parties own property as joint tenants, this means that all joint tenants have equal ownership and interest in the property and a right of survivorship exists.
The right of survivorship states that if one of the joint tenants die, the property will automatically pass to the surviving joint tenants. The right of survivorship does not take in consideration any intentions in the Will of deceased. This means that all property that you own as joint tenants upon your death will pass to the surviving tenants. It is important to note that unless you specify otherwise at the time of purchase the law assumes that your purchase is a joint tenancy. Furthermore, you cannot bequeath your joint tenancy in a property in your Will.
A joint tenancy will come to an end should the property be sold to a third party, when one party transfers their interest to the other party, or when one of the joint tenants unilaterally severs the joint tenancy. In order to sever a tenancy, it is not required to obtain consent from the other party, however, to lodge the severance with the titles office the original title will be required. If the original title is held with the bank you might require the other parties consent to obtain the title.
Tenants in common in equal shares and unequal shares
The alternative to owning a property as joint tenants is tenants in common. As tenants in common you can either hold the property in equal shares or unequal shares. This type of ownership is usually established at the time of purchase; however, the share amounts can be altered at any time as long as all parties consent. For example, we have a husband and wife who buy an investment property and choose to own it as tenants in common in equal shares. This means that each of the husband and wife own 50% of the property. The alternative would be for them to purchase the property as tenants in common in unequal shares, whereby the husband could own 30% and the wife 70%.
Unlike joint tenancy, the right of survivorship does not apply in this case. Each party is able to bequeath their share in the property to anyone they wish through their Will and the other tenants will not have a legal claim to it.
Should the co-owners choose to sell the property, the sale proceeds will need to be distributed according to the shares each owner held in the property. This also means that one of the owners can sell their share in the property to another person, rather than both having to sell the entire property to a new owner.
The way your property is owned is a crucial aspect in considering how you frame your estate planning needs. If you need advice on your estate planning needs or would simply like to find out how you own your current properties please contact us.