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The right of survivorship is a legal concept that determines what happens to jointly owned property when one owner dies. In arrangements like joint tenancy or tenancy by the entirety, this right allows the deceased person’s share to automatically transfer to the surviving co-owner, bypassing probate. It’s commonly used for real estate, bank accounts and investment assets shared between spouses or family members.
A financial advisor can help you ensure that your assets are set up to avoid the probate process.
How Right of Survivorship Works
The right of survivorship allows a deceased co-owner’s share in jointly held property to transfer directly to the surviving owner or owners. This bypasses probate and happens automatically if the ownership structure includes this right, such as in joint tenancy or tenancy by the entirety.
This transfer is immediate and does not require court approval. However, the survivorship right can be lost if one co-owner sells or transfers their interest, potentially converting the ownership into a tenancy in common. Because laws differ by state and ownership changes can have legal and tax consequences, property owners often consult legal professionals before making changes.
Joint Tenancy vs. Tenancy in Common vs. Tenancy by the Entirety
These three forms of co-ownership differ in key ways. Joint tenancy involves equal ownership interests and includes the right of survivorship. Upon the death of one owner, their share automatically transfers to the surviving owner or owners.
Tenancy in common, by contrast, allows co-owners to hold unequal ownership percentages and does not include the right of survivorship. When an owner dies, their share passes to their heirs or according to the terms of their will.
Tenancy by the entirety is similar to joint tenancy but is available only to married couples (and in some states, civil partners). It includes the right of survivorship and often provides added protections against individual creditors.
While all three involve co-ownership, joint tenancy and tenancy by the entirety automatically transfer ownership at death, whereas tenancy in common allows more flexibility in estate planning. Choosing among them often depends on your goals for the property and your relationship with the co-owner.
Community Property vs. Separate Property
Community property is the name for assets acquired during a marriage, owned equally by both spouses. Separate property, however, is solely owned by one spouse and is usually garnered before marriage or received as a gift or inheritance.
To provide a real-life scenario, if a couple purchases a house after getting married, that asset is considered community property. On the other hand, if one spouse inherits a piece of land from their family, that would be their separate property.
The crucial distinction between these two lies in the division of assets in situations such as divorce or death.
Application of these properties can vary greatly depending on state laws and the existence of a will or trust.
Separate property, for example, does not guarantee that the spouse will receive the property upon the death of the first spouse.
Right of Survivorship and Estate Taxes
The right of survivorship can influence how property is taxed after death. When a co-owner dies and their share of a jointly owned asset transfers automatically to the surviving owner, that portion may still be counted in the deceased person’s estate for tax purposes. This applies even though the property bypasses probate.
If the property’s value is substantial, the inherited share could trigger federal or state estate tax, depending on the overall size of the estate and applicable exemption thresholds. For married couples, this may not be an issue due to the unlimited marital deduction, but for non-spouses or second homes, tax liability may arise.
The specific tax impact depends on factors such as the relationship between co-owners, the value of the property, and the estate tax laws in your state or the state where the property is located. In some cases, planning tools like trusts or titling strategies may help reduce exposure. A financial advisor or estate attorney can assist in reviewing ownership structures and tax implications before or after a transfer takes place.
Alternatives to the Right of Survivorship
While the right of survivorship offers a streamlined transfer of property, other ownership and estate planning methods may better suit certain situations. Tenancy in common, revocable or irrevocable trusts, and wills allow for more customized control over how property is passed on.
Trusts and wills, for instance, enable the owner to designate specific heirs and set conditions around timing and distribution. These approaches may be useful for blended families, long-term planning or when avoiding automatic transfer to a co-owner is preferred.
The best approach depends on the nature of the property, your goals for inheritance, and any legal or tax considerations that apply to your situation.
Bottom Line
The right to survivorship can help joint owners of a property or assets bypass the probate process by ensuring a smooth and immediate transfer of ownership to the surviving owner(s). However, you should take note of the legal requirements and potential changes that could 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 hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel 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 estate planning on your own, make sure you understand the common estate planning mistakes that many have made before you.
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