When purchasing real estate, whether for personal use and enjoyment or as an investment, there are several ways to share the ownership with one or more other individuals. For investment purposes, one of the most workable structures is tenancy-in-common. In a TIC ownership arrangement, there are at least two owners, although there can be an unlimited number, and each share can be of a different size. Each owner can dispose of their portion as they desire—at any time. However, each TIC owner has undivided access to the property. That factor makes a TIC agreement crucial, whether the property is for personal use or held as an investment.
Unlike with a joint tenancy, each owner determines the future distribution of their individual share when they die. In contrast, if the structure were a joint tenancy, each owner would have the right of survivorship, meaning that the interest of any owner who dies would be distributed among the remaining owners. Looking at each structure, you can see practical differences:
Suppose that five friends own a commercial property together in joint tenancy. Each one has an equal share of the property and is thus responsible for an equal twenty percent of costs and entitled to an equal twenty percent of any profits. If one of the owners dies, each of the remaining four absorbs one-quarter of the fifth previously belonging to that individual. In contrast, with a Tenant-In-Common arrangement, those five owners might each have a very different stake in the property. For example, one could own ninety percent, with the remaining four sharing the other ten percent. If the majority owner decides to give away their share, the other owners have no authority to stop them and no right to inherit if they should die.
What Is Probate?
Probate is a legal process to transfer property when the owner dies. Often, a property owner names an executor in their will. That person is tasked with cataloging assets, collecting information on liabilities, paying off debts, and distributing remaining assets according to the deceased person’s wishes. Typically, probate is administered under the supervision of a probate court. And this process can add time and expense to the division of assets. For that reason, some people try to avoid the process, but it’s not easy for those with considerable assets.
How Does Tenant-In-Common Ownership Impact the Need for Probate?
In ordinary circumstances, the presence of a TIC ownership agreement won’t exempt an estate from the need to proceed through probate. However, it wouldn’t likely force a straightforward transfer into probate if it was not otherwise headed there. For example, when a person with a TIC interest dies, their ownership stake in the subject property will be passed along to the designated recipient. The other owners are not affected by their transfer, except that they now have a new co-owner who may have different goals.
In an alternate scenario, the deceased individual could leave their share of the property to one or more of the other owners, which might cause a change in the power balance. However, probate doesn’t affect that situation (like one in which there is a new, unfamiliar, or unwelcome participant). If the TIC ownership group conflicts escalate to the point that they can no longer agree on decisions, they may have to terminate the ownership arrangement.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.