*Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, and Washington.

Tenancy by the Entirety - a statutory form of ownership created by a conveyance only to a husband and wife (right of survivorship is recognized.) 

• Like joint tenancy, parties must acquire their interest at the same time and through one title. They must have equal interest and equal rights of possession in the property. 

• Primary difference between tenancy by the entirety and joint tenancy  - joint tenants may deal with the property as they wish. If one joint tenant conveys an interest in the property, that interest is fully conveyed and the joint tenancy is destroyed.

•  In tenancy by the entirety, each tenant essentially owns the entire estate, that is, neither can deal with the property independently of the other. 

Advantages: The primary advantage of this difference is that judgment creditors of one party cannot enforce their liens against the property. If a debtor spouse dies first, the lien can not usually be enforced against the property but if the non-debtor spouse dies first, the lien could be enforced.

Disadvantages: Property held in tenancy by the entirety cannot be severed by a partition action filed by one of the parties. If one spouse disappears or becomes/declared incompetent, difficulties can arise in transferring or encumbering the property. Also, there could be estate planning ramifications - as examples, [1] a  surviving spouse may be unable to disclaim the interest of the decedent or [2]  a common estate planning technique can be foiled when property is held in tenancy by the entirety - one party cannot convey title to an adult child as is possible under joint tenancy.  (Seek competent legal/professional tax advisement for answers to your questions!)

Joint Tenancy or Tenancy in Common?

When two or more people purchase property, the lawyer will usually ask [1] how do you want your new ownership to be registered, and [2] where is the state in which the property is located?  In those states that do not have tenancy by the entirety, most couples will choose to register the title in both spouses names and most often as "joint tenants" so that if one of the owners dies, the remaining owner/spouse acquires the share of the deceased owner automatically. If yours is a first marriage and there is only one set of children to consider, then this is usually the correct choice. If however, this is your second marriage and you and your spouse have two sets of children to consider, then this becomes problematic. 

Before determining how the property should be registered, it is important to consider the effect that the ownership of land will have on the disposition of your estate upon your death. Although it is essential that each spouse have a valid "will", joint assets cannot always be dealt with in a will. (A lawyer preparing a will must first determine the state of ownership of all assets.) 

• Both Names As "JOINT TENANTS"  -  if one owner dies, the surviving owner will automatically receive title to the whole property. Neither party can do anything with the property in their will since the property passes by law to the surviving "joint tenant". 

• Both Names As "TENANTS IN COMMON"  - where each spouse's one half interest is preserved and can be left to anyone the testator desires in his/her will.

• A Single Name Of "EITHER ONE OR THE OTHER"  - the owner (as the sole owner of the property), may leave the asset to anyone he/she desires in a will.

If you are not in a state that has tenancy by the entirety, registering your property in joint tenancy is probably fine for first marriages with only one set of children since it can avoid (or partially avoid) the cost of probating the estate since the property transfers automatically to the surviving joint tenant. In a first marriage (where children are from both spouses), most couples will usually convey the entire estate to the other spouse having full confidence that the children will be looked after and provided for in the future. 

Tenancy in common is the choice for most business transactions because each partner in the property wants to be able to leave his/her share to his/her own family and has no reason to benefit the other partners by giving them this share. In states that do not have tenancy by the entirety,  this form of ownership could be better for a second marriage situation with two sets of children. 

In a second marriage, one spouse may desire to show good faith and/or to provide the other spouse "security" by conveying  the family home into both names.  Providing a spouse security by transferring it into joint tenancy can create problems however.  Many spouses prepare "crossover" wills and trust each other not to change them in the future. Usually, they each leave the whole estate to the surviving spouse and then add a provision that upon the death of the second spouse, the estate is to be divided equally between the two sets of children. If the major asset of the family is held jointly, it may be necessary to sever the joint tenancy.  It may be a better idea to leave the asset in your own name.  A better solution to provide the spouse security might be to draw up a will and to create a "life estate" that will provide adequately for the spouse over his/her lifetime.

Another possible solution that may work (if the estate is large enough), is to split the estate with part going to the spouse and part to the testator's children at the death of the first spouse.  The survivor could then carry on and leave the whole of his/her estate to his/her children without concern for the other set of children since they have already received their portion of their parent's estate. In a sound marriage,  the testator usually desires to provide for the needs of the spouse first and then the children. 

When a second marriage is in trouble and major assets are held jointly, problems can arise. Each party will usually want "their fair share" and they may feel that they can no longer rely upon the other spouse to be fair in remembering that part of the estate came from their efforts and should be passed onto their children.  They could feel that the other spouse could possibly cut the other set of children out of any future will in the event they die first. If they did die first, the other spouse would "win" the whole asset. Essentially, it comes down to the luck of the draw!

The best solution might be to sever the joint tenancy thereby acknowledging that each spouse is a separate owner of one-half of the asset and is free to deal with that asset as they see fit (check with your states' attorney to see if this is possible.) 

Drawbacks: [1] By "surviving" the other spouse, you also avoid the chance to "win" all the assets and have to be satisfied with one-half. [2] Just discussing these issues can cause marital discomfort and may lead to unpleasant results. On the other hand, both spouses should recognize the need for a solution and cooperation.  The best approach may be to combine the severance of the joint tenancy with separate wills whereby each spouse allows the other the use of the testators half of the asset for the rest of the survivor's life and then let the asset revert to the testator's children.

Sound advice would be to plan ahead and make prenuptial/marriage agreements before entering into a second marriage.  Discuss these family issues openly and fairly with children on both sides and your attorney or tax advisor.

Joint Tenancy

Disadvantages: Many times, people have attempted to avoid probate by holding assets in joint tenancy with a child.....

• If you hold assets with a child and the child was ever held in a lawsuit, you could lose your asset. Once an asset is held in joint tenancy, it is then subject to any judgments. 

• Property held in joint tenancy with a child can lose half of the "stepped-up" valuation. Example: say you bought your home in 1965 for $25,000 and today your home is valued at $200,000.  Upon your death, your child would only received the original cost basis of $25,000 and not the market value thereby getting hit with a very large capital gains tax bill!  An alternate solution would have been to pass the home to the child in a "living trust" so they would have inherited the home at the market value and not had to pay the capital gains tax.

• Both federal estate tax exemptions cannot be claimed if you simply hold joint tenancy.  When one spouse dies, the other receives the other's share of the estate. If the estate is over $675,000, there is no proper way to maintain the deceased's exemption, thus "throwing it away". Probate is avoided after the first spouse; however after the second spouse dies, the estate goes through probate and anything over $675,000 is usually taxed at 37% or more. If a "trust" were used, you may have avoided probate and been allow a $1,350,000 (2 people x $675,000) exemption avoiding the federal tax.

• If assets in joint tenancy are left to one child, that child does not have to honor your will. You gave it to them as a "joint tenant" and they become legal owner and do not have to share it with other beneficiaries of your will. A possible solution to this problem would be to transfer assets into a living trust because it could avoid probate and protect your estate from your children's creditors, maintain the full "stepped-up" value of your assets, keep both federal tax exemptions, and pass your estate to your children the way you desire!  Of course, check with an attorney and/or a tax specialists for appropriate advice as to how this relates to your situation.