Joint tenancy is a simple way for two people to own an asset. If you and another person are joint tenants with a right of survivorship, you own the property together. If one of you dies, the other one owns the property.
Joint tenancies are not just used by married couples. Business associates, parents and their adult children, unmarried couples, and even friends sometimes put property into joint tenancy.
Tenancy by the entirety is similar to joint tenancy. In some states, married couples can use tenancy by the entirety instead. Before you hold property in joint tenancy with any other person, however, you should know how it works, when it's the best option, and when it can be a disaster.
Good reasons to hold property in joint tenancy
- Setting up a joint tenancy is easy. In fact, you may enter into it without much thought -- for example, when you both sign up as owners of a new car, or when you open a bank account. You don't usually need any additional documents, and it doesn't cost anything.
- Assets held in joint tenancy avoid probate. You really, really want to avoid probate -- the legal process of administering a deceased person's will (or estate if there is no will). This process includes collecting assets, paying bills and debts, and distributing anything that's left. Avoiding probate is especially important for assets the other person needs to use immediately after one of you dies. Probate can take months, or even years. The costs of putting an asset through probate can be up to 5% of your estate's value. It's a good idea to keep as many assets as possible out of probate, and putting them in a joint tenancy may be the easiest way to do that.