Probate administration is the process by which it is determined who legally inherits property after an owner's death, and it's necessary to verify that the deceased person's wishes are being followed. However, not all forms of property are eligible for going through the probate process. Understanding how jointly owned property is handled after an owner's death is important so you can decide if you want to use this ownership method or not long before anyone passes away.
Co-signer vs. Co-owner
When purchasing a property, it's possible to have multiple people sign the paperwork together for purposes of using their combined credit history for the mortgage or loan. However, this is not the same as being co-owners. Depending on the state, there are separate processes for co-owning property rather than just co-signing a deed together during a purchase. Only co-owners, not just co-signers, can become the full owners of a property without going through probate administration.
Couples, family members, or friends who establish a joint tenancy when signing their deed or other property ownership paperwork have the right to skip the probate process. Most states consider all co-owner situations involving physical property to be a joint tenancy, but others require you to file extra paperwork to specifically state you wish to be considered equal owners of the property. Joint tenancy indicates you equally use and own the property, so keep in mind that choosing this arrangement could backfire if the other owner feels you're neglecting the property because they can force you to pay for repairs.
Tenancy by Entirety
Aside from joint tenancy, there's also a way to set up a deed so that everyone that signs it is considered a tenant in entirety. While the wording sounds differently, it's basically the same arrangement as a joint tenancy when it comes to inheritance at least. All co-owners are considered full owners in case of a loss of other owners, which means property is handed over immediately to the survivors without the need for probate court and dealing with frozen assets. This form of ownership is limited entirely to couples that are either married or in a domestic union, so you must stick to joint tenancy if you want to make an arrangement with your child, a family friend, or anyone else.
While establishing some form of joint ownership for a property does avoid the costs and waiting periods of probate administration, it's not entirely an automated process either. You must still notify the local office that holds your records, or the mortgage holder, upon the death of a co-owner and forward the correct paperwork, which usually includes a few forms and a copy of the death certificate. Handle these steps quickly after the co-owner passes away to avoid leaving the property in limbo in case of an accident or natural disaster.
It's important to know your state's specific requirements for developing a co-ownership or joint tenancy arrangement. While some states keep it as easy as simply signing two names on a deed, others want specific statements written in separate paperwork to prove that you fully intended to give the co-owner rights as an owner. A co-owner or joint tenant gains the rights to change the property, sell it, or even demolish it without your permission, so this is a big step to take and it requires plenty of forethought. Talk with a real estate or probate attorney before making the decision to sign this kind of paperwork, even with a child or spouse, so you don't end up in an unpleasant situation that was easily avoided with a different kind of agreement.
Contact a probate professional, such as Leon J Teichner & Associates, P.C., for more information.