DAVID J. WILLIS ATTORNEY
Copyright © 2013. All rights reserved worldwide.
CO-OWNERSHIP OF PROPERTY IN TEXAS
With Comments on Joint Tenancy vs. Tenancy in Common
by David J. Willis, J.D., LL.M.
Attorneys often face co-ownership issues when advising on inheritance and probate avoidance. Inheritance in such cases may be determined by express language in a deed or a last will and testament, or in the absence of either, by intestacy provisions of the Estates Code. In some circumstances a co-owner may have no survivorship rights at all.
Another area is the common request from clients that someone be "added" to a deed which, unfortunately, is not as simple as it sounds. This topic is discussed below.
Co-Owners Who Are Spouses
Does a surviving spouse inherit the entire interest in the home when the other dies? Not necessarily. It is first necessary to determine if the deceased spouse died "testate" (with a will) or "intestate" (without a will). If a spouse dies intestate, property automatically vests 100% in the surviving spouse only if the property is community property and the deceased had no children-or, if there are children, all of them are the result of the marriage between these two spouses (i.e., there are no children from a prior marriage, an increasingly uncommon circumstance). See Estates Code section 201.003 for further explanation.
Co-Owners Who Are Not Spouses
Texas law presumes that if two nonspouses are named as co-owners, and nothing more is said, then they are tenants-in-common (Tex. Est. Code §101.002). This means they each person owns an undivided one-half interest in the property but there is no automatic right of survivorship. When one co-owner dies, the interest of the deceased co-owner goes directly to that person’s heir or heirs, either by will or by intestate succession. The recipient may or may not be the other co-owner. The line of succession may be vertical rather than horizontal.
Joint Tenancy with Rights of Survivorship (JTWROS)
Estates Code section 111.001(a) states the following as to non-spouses: "Notwithstanding Section 101.002, two or more persons who hold an interest in property jointly may agree in writing that the interest of a joint owner who dies survives to the surviving joint owner or owners." Accordingly, business partners, or perhaps a brother and sister, may agree in writing to establish JTWROS. As to spousal community property, section 112.051 states: "At any time, spouses may agree between themselves that all or part of their community property, then existing or to be acquired, becomes the property of the surviving spouse on the death of a spouse." Section 112.052 further requires that such an agreement "must be in writing and signed by both spouses."
The simplest way to accomplish JTWROS is to recite language in the deed which expressly establishes survivorship rights. In order to make the intention of the parties plain on the face of the deed, this language should be included at the time that both persons receive their interest in the property. An example of a grantee clause that creates joint tenancy is "John Smith and wife, Mary Smith, as joint owners with rights of survivorship as provided by Texas Estates Code section 112.051, and not as tenants-in-common." The intent and agreement of the co-owners is stated clearly, achieving a survivorship arrangement that has been dubbed the "poor man’s will." Note that the grantee/spouses should sign the deed in order to fully comply with section 112.052.
Estates Code section 121.152 imposes a caveat: In order for a joint tenant to inherit, the survivor must survive the deceased by at least 120 hours. If this does not occur, then "one-half of the property shall be distributed as if one joint owner had survived, and the other one-half shall be distributed as if the other joint owner had survived."
Note that if property is currently held by two persons as tenants-in-common, they can convert this to joint tenancy by means of a survivorship agreement as provided in Estates Code section 111.001(a) or section 112.051 (depending on whether or not the property is community property). However, this method does not physically change the warranty deed, and many persons are looking for just that–a single title document that states both names and makes survivorship clear.
The Role of a Last Will and Testament
Even if a deed contains no survivorship language, each co-owner may make his or her wishes plain by executing a valid will that provides for inheritance of the deceased's interest (Tex. Est. Code §101.001). The Estates Code is a fallback that comes into effect by default, in the absence of a will. Failing to make a will is equivalent to asking the State of Texas to determine how your property will be disposed of. See Tex. Est. Code §§ 201.001 et seq.
Deeds Prepared by the Title Company
When buyers arrive at a title company to close, they are often handed an assembly-line deed that contains no extra clauses favorable to them–unless, of course, their own attorney has negotiated the inclusion of such clauses. This is unfortunate, since a warranty deed is qualitatively different from the routine forms and disclosures that title companies prepare. It is the sole document that evidences title to the property and may also set forth significant conditions upon which the seller is selling and the buyer is buying. It is far more important than, say, a MUD disclosure.
It is worth the effort to customize the warranty deed so it suits one’s purposes. Generally, one should not expect the title company to assist with this. Title companies are insurance companies. They and their attorneys look out for themselves, not you. It is astonishing how many people, even investors, naively believe that the title company is concerned with their best interests and will draft documents accordingly. Not necessarily so.
If buyers want to hold title as joint owners with rights of survivorship, they must specifically ask in advance of the closing that appropriate wording be included in the deed. Ideally, this intent should be reflected on the earnest money contract they sign to purchase the property.
What happens if a person dies both without a will and without a survivorship provision in their deed? Such property is often referred to as "heirship property" and, without curative measures, may be unsellable except perhaps privately by means of a deed without warranties or quitclaim.
A title company will not issue title insurance until heirship issues are first addressed and resolved. An affidavit of heirship is often used for this purpose (See Tex. Est. Code §203.001), followed by a consolidating deed signed by the heirs. The affidavit recites relevant facts concerning family history, identifies the heirs, and is usually signed by a family member with personal knowledge. The deed is then signed by the heirs with the goal of moving title into a single heir or perhaps a third-party buyer. Both documents should then be filed in the proper order in the real property records.
Adding Someone to the Deed
Clients often ask that another person be added to their title so that this other person will have co-ownership and inheritance rights. There are two methods:
- The existing owner can execute a deed to the other person for a percentage of fee-simple ownership (e.g., 50%). The result is that each person becomes a co-owner, although this status is reflected in two documents, not one. Again, Texas law presumes that the two persons here are tenants-in-common; however, the two co-owners may also execute a separate survivorship agreement as permitted by the statute, making a total of three documents.
- The second method is for the owner to transfer the property out to a third party (the attorney or some other trusted individual) who then transfers the property back into the two desired names with JTWROS language. This is the only way both names wind up on the same warranty deed.
If the intent is to achieve JTWROS plainly reflected in a single instrument, then the second method described above is the only way to achieve this. Title must be conveyed out to a third party and then conveyed back as JTWROS, requiring that two deeds be executed and filed back-to-back.
Regardless of whether the result is tenancy in common or JTWROS, the added person does not become liable on the loan on the property. Liability on a loan occurs only when a note is signed. No signature on a note, no liability to the bank.
If a client wants to add someone to a deed, then he or she should let the attorney know which of the two methods is preferred; provide a copy of the existing warranty deed to the property; and supply all pertinent names, addresses, and the marital status of the parties.
If one investor owns 60%, another owns 20%, and a third owns 20%, then it is appropriate to specify these percentages in the deed by which the property is acquired. Alternatively, the three owners could form an entity (an LLC or a trust) to hold title, and the records of the LLC would reflect the varying membership interests or, if a trust is used, the varying beneficial interests. An LLC is preferred if the parties are concerned with potential liability, a trust if the principal concern is anonymity.
Percentage ownership is not available in the case of JTWROS.
The Living Trust Alternative
A living trust achieves the objectives of joint tenancy and more. It is designed to hold property (primarily real estate) during the life of the trustor (the person conveying the property into trust) in order to avoid probate and potentially reduce estate/inheritance taxes at the time of the trustor’s death. Read our chapter on living trusts.
Information in this article is proved for general educational purposes only and is not offered as legal advice upon which anyone may rely. The law changes. Legal counsel relating to your individual needs and circumstances is advisable before taking any action that has legal consequences. Consult your tax advisor as well. Although we respect your confidentiality, this firm does not represent you unless and until it is retained and expressly agrees in writing to do so.
Copyright © 2013 by David J. Willis. All rights reserved worldwide. David J. Willis is board certified in both residential and commercial real estate law by the Texas Board of Legal Specialization. More information is available at his website, http://www.LoneStarLandLaw.com.