Right of survivorship refers to the legal principle that upon the death of a joint owner, the remaining owner(s) automatically inherit the deceased owner’s property or share of the property without having to go through probate. This is how it works.
A financial advisor can help you make sure your estate is organized to avoid the probate process.
How does right of survivorship work?
Right of survivorship is a legal principle primarily associated with joint property ownership, particularly in joint tenancy and tenancy by the entirety.
In joint tenancy, co-owners have an equal and undivided interest in the property. If a joint tenant dies, their share automatically transfers to the surviving joint tenant without probate.
Similarly, in tenancy by the entirety, a form of ownership reserved for married couples, the entire property is owned jointly and the right of survivorship applies. This ensures that if one of the spouses dies, the surviving spouse inherits the property seamlessly.
Any change, such as a co-owner selling his or her interest, may eliminate the right of survivorship and therefore alter the ownership structure. This would require adopting a different legal approach.
Legal advice is recommended to help you understand property ownership and survivorship rights, and how they may change depending on jurisdiction and specific circumstances.
Joint tenancy vs tenancy in common
These two forms of co-ownership differ in major ways. Joint tenancy aligns with equal ownership interest in the property and also includes the right of survivorship. On the death of an owner, their share is automatically transferred to the surviving owner(s).
In contrast, tenancy in common allows co-owners to keep different percentages of ownership and does not include the right of survivorship. On the death of the owner, his share passes to his heirs or as directed in his will.
Therefore, while both forms provide for co-ownership, joint tenancy ensures automatic property transfer after death. But tenancy in general offers more flexibility in estate planning.
When considering between the two, practical considerations such as your long-term goals for the property, as well as your co-owner’s wishes and circumstances, should be taken into account.
Community property vs separate property
Community property is property acquired during marriage, which is owned equally by both spouses. However, separate property is owned solely by one spouse and is usually acquired before the marriage or received as a gift or inheritance.
To provide a real-life scenario, if a couple purchases a home after marriage, that property is considered community property. On the other hand, if a spouse inherits a piece of land from their family, it will be their separate property.
The key difference between these two lies in the division of property in situations like divorce or death.
The application of these assets can vary significantly depending on state laws and the existence of a will or trust.
For example, separate property does not guarantee that one spouse will receive the property upon the death of the first spouse.
Right of Survivorship and Wealth Tax
Right of survivorship can have a significant impact on estate taxes.
For example, take a property under joint tenancy with right of survivorship which transfers to the surviving owner. If the value of that asset is high enough at the time of passing, it may potentially be taxable, and thus a burden on the surviving owner.
In this scenario, considering the help of a financial advisor may provide a specific strategy to understand and potentially mitigate these tax implications. The amount of tax you may owe will depend on where you live and where the property is located.
Right to survive options
Right of survivorship is common in property ownership, but given one’s own specific circumstances, a number of other methods can be considered such as tenancy in common, tenants by the entirety and ownership of property through trusts and wills.
Each of these options has advantages and disadvantages. For example, trusts and wills provide greater control over asset distribution after death. They may allow owners to specify heirs and the timing of their assets, offering special benefits for complex estates or specific inheritance wishes.
The right estate planning strategy for you will depend on your individual circumstances.
Right of survivorship can help joint owners of an asset or property bypass the probate process by ensuring a smooth and immediate transfer of ownership to the surviving owner(s). However, you should pay attention to legal requirements and possible changes that may limit those rights.
Tips for Estate Planning
- A financial advisor can help you properly plan your estate so that your assets are protected and your beneficiaries can avoid the probate process. Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with three verified financial advisors serving your area, and you can have a free introductory call with one of their advisors to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you’re starting your own estate planning, make sure you understand the common estate planning mistakes that many people before you have made.
Photo credits: ©iStock.com/shironosov, ©iStock.com/Prostock-Studio, ©iStock.com/PeopleImages