04 August 2013
Tackling Tenancy
Tackling Tenancy– A guide for realtors
Our real estate community is well versed on the basic differences between the common forms of tenancy in Georgia. But Georgia is a relocation hot spot for people all over the United States. “Tenancy in Common?” – Got it. “Joint Tenants with Rights of Survivorship?” – Got it. “Tenancy by the Entirety?” – Don’t got it. Believe it or not, we get a lot of questions about this last type of tenancy, even though it isn’t an option in Georgia. Here’s what to know—
Concept of “Undivided Interest”
Long ago, when I was really little, my older brother and I each had a silver piggy bank. If we wanted a new toy, our mom would make us take the money out of the bank. On one occasion, my brother was short of change and coaxed me into buying a toy “together.” We opened up our metal banks and lots of change came out of mine, and from my brother’s? Well, not so much. We poured the coins into a small pile and after my brother determined that we did not have enough money to buy the toy, the coins were evenly divided and put back into the piggy bank. This is what is meant by “undivided interest.” When two or more individuals own an undivided interest in a piece of property (or pool of change as the case may be), there is no invisible line drawn down the middle of the property. Instead, the ownership is a shared interest in the whole.Tenancy in Common and Joint Tenancy Compared
When property is held in either tenants in common or joint tenants, each party owns an undivided interest in the whole and the interests remain separate so long as both (or all) the co-tenants are living. The difference between the two occurs if any of the owners die. In the case of a tenant in common, the interest of a deceased co-tenant remains in that person’s estate. Probate is typically required in order to deliver good and marketable title out of the estate interest. On the hand, when title is held as joint tenants, the survivor(s) takes the interest of the deceased person automatically upon death which avoids the need to probate. From a title perspective, the procedure in handling a joint tenancy is fairly simple and requires only recording a copy of the death certificate in affidavit form at the county clerk’s office.Tenancy by the Entirety – and Importance of Recognizing
Since Georgia is such a popular relocation area, it is important to be familiar with tenancy by the entirety since clients from out of state will occasionally ask about it. The State of Georgia does not recognize tenancy by the entirety. The conceptual equivalent in Georgia would be joint tenants reserved exclusively for married couples. The distinction is that in some states, the rights of married persons are treated differently than unmarried, and in those states the couple is treated legally as a single owner of the entirety. For example, spouses may be restricted from transferring his or her interest without the consent of the other. Depending upon the specific out of state law, a tenancy by the entirety is generally the equivalent of a Georgia joint tenancy, combined with marriage, and a dash of some other legal attribute. The difference in Georgia is that, married or not, any joint tenant may transfer his or her interest without the consent of the other, although this will have the effect of severing the joint tenancy and the resulting interests will be held as tenants in common.Interpreting the Deed – “Does my client have joint tenancy or not?”
Now let’s move on to the question of how to interpret the deed language. The first rule to know is that a joint tenancy requires additional language to create since a deed with no intent to create a joint tenancy will default to a tenancy in common. The Georgia Statute sums up the rules on joint tenancy fairly clearly:“…Any instrument of title in favor of two or more persons shall be construed to create interests in common without survivorship between or among the owners unless the instrument expressly refers to the takers as "joint tenants," "joint tenants and not as tenants in common," or "joint tenants with survivorship" or as taking "jointly with survivorship." Any instrument using one of the forms of expression referred to in the preceding sentence or language essentially the same as one of these forms of expression shall create a joint tenancy estate or interest… “ (GA Code § 44-6-190(a)).
We see, in Georgia, that tenancy defaults to tenancy in common, and that creation of a joint tenancy does not require particular language. One expression commonly seen on deeds is, “Joint Tenants with Rights of Survivorship.” In older deeds, though, the language may be embedded deep in the text of the deed and not readily apparent. In those deeds, the language may read something to the effect of, “to Adam Smith and Eve Smith, during their lives, then to the survivor of both.” Bottom line— it may take reading an entire deed to definitely determine whether joint language exists or not.
Assistance without Giving Tax Advice
Because choice of tenancy has estate and potential tax consequences, it’s best to keep to the facts when explaining tenancy to clients. Invariably, a client will ask, “Which is better? Joint tenants or tenants in common?” One way to respond is by explaining that the “best option” is the one most suitable for the client’s particular circumstances and that may involve running the question by the client’s accountant or estate planner.Two business partners may wish to acquire property as tenants in common and not joint tenants, when the interest of either should go to the family of the deceased, and not to the business partner. A young couple engaged to be married, or partners in non-legally recognized civil unions, may wish to take title as joint tenants since the surviving owner will have no legal right to the other one-half interest in the property without a Last Will & Testament. Unfortunately, these issues do arise and they are problematic. Often the survivor is held hostage without the ability to effectively manage the property interests. Another scenario to consider is second marriage couples, in which each spouse desires his or her interest to go to the children of the first marriage. Since joint tenancy passes outside of probate and ignores instruction in a Last Will and Testament, it may be more appropriate to hold as tenants in common, where the interest can be controlled by the Will.
As we can see, joint tenancy clearly has benefits in certain situations, other than mere convenience of avoiding probate. On the other hand, joint tenancy can be entirely inappropriate. For uncertain clients, the good news is that the tenancy can be changed at any time and the process in Georgia is simple and inexpensive.
CHRIS PAHL
Real Estate Attorney
945 E Paces Ferry Rd
Suite 2250
Atlanta, GA 30326
Tel. +1 (678) 448-4148
web: GeorgiaTitle.com
contact: PaperAndDirt.com
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