Should my spouse and I invest under Joint Tenancy?

Are you and your spouse considering investing in apartment syndications together? One question you may be wondering is whether you should invest as joint tenants with rights of survivorship. In this article, we will discuss what joint tenancy is, how it works, and the pros and cons of investing as joint tenants in apartment syndications. A quick disclaimer: New Sight Capital are not attorneys nor tax advisors and the following information is simply introductory and should not supersede the advice of your advisors.

What is Joint Tenancy?

Joint tenancy is a form of property ownership in which two or more individuals own the same asset, such as real estate (or equity in a syndication), with equal shares and rights to the asset. Joint tenants have an undivided interest in the property, meaning that they have an equal right to the asset, and the asset cannot be divided into separate ownership interests. Each owner is entitled to an equal share of the asset’s income, expenses, and tax obligations.

One of the defining features of joint tenancy is the right of survivorship. This means that if one owner passes away, their share of the property automatically transfers to the surviving owner(s). This transfer occurs without the need for probate or additional legal documentation, as the deceased owner’s share passes to the surviving owner(s) by operation of law. The surviving owner(s) then own the entire asset, and the ownership structure remains as joint tenants.

Pros of Joint Tenancy in Apartment Syndications

One advantage of investing in apartment syndications as joint tenants is the simplicity of the ownership structure. All owners have an equal share of the investment and equal rights to the income generated by the investment. If one owner passes away, their share of the investment automatically transfers to the surviving owner(s) without the need for probate or additional legal documentation. For some married couples, avoiding probate is important. For others, probate may not be a concern.

Another advantage is that joint tenancy can provide tax benefits. When one owner passes away, their share of the investment receives a step-up in basis to its current fair market value. This can reduce the capital gains tax liability for the surviving owner(s) if they decide to sell the property in the future.

Cons of Joint Tenancy in Apartment Syndications

One of the drawbacks of investing in apartment syndications as joint tenants is the lack of flexibility in the ownership structure. Investing as joint tenants does not allow for separate ownership of the investment, meaning that the equity cannot be sold or transferred without the agreement of all owners. This can be problematic if one owner wants to sell their share of the investment but the other owner(s) do not agree.

Another drawback of investing as joint tenants is it can lead to disputes between co-owners. If one owner wants to use the investment differently than the others or contribute more or less to the investment, conflicts can arise.

Conclusion

Investing in apartment syndications as joint tenants with rights of survivorship can provide simplicity and tax benefits, but it also has limitations in terms of flexibility and potential for conflicts. Before making any investment decisions, it’s important to seek the advice of a qualified investment professional or attorney to determine if joint tenancy is the right choice for your particular situation. They can help you understand the legal and financial implications of the investment ownership structure and assist you in making an informed decision that aligns with your investment goals and risk tolerance.

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