Joint Ownership of Property in Tennessee: JTWROS (Part 2 of 3)
Joint tenancy with rights of survivorship (JTWROS) is the second form of joint property ownership in Tennessee.
The primary distinction of JTWROS is automatic rights of survivorship at death. Like tenancy in common property, each joint owner of JTWROS property owns an undivided interest in the property, but upon death the deceased owner’s share automatically vests by operation of law in the surviving joint owner – regardless of what the deceased owner’s will or other estate planning documents say.
JTWROS is usually held between family members, but may also be held between third parties who desire the survivor to inherit their interest. While married spouses in Tennessee may own property as JTWROS we rarely see this form because Tennessee recognizes tenancy by the entirety ownership between spouses.
For estate tax purposes, JTWROS property owned by married spouses is deemed to be owned 50/50 and one-half of the fair market value of the property is included in the first-to-die spouse’s estate.
The “consideration furnished rule” governs the estate tax consequences of JTWROS property held by non-spouses. Under this rule, the value of JTWROS property included in the first-to-die owner’s estate is the portion of the JTWROS property attributable to the first-to-die owner’s capital contribution to the acquisition of the property. The estate must have supporting documentation or otherwise the entire value of the property is included in the first owner-to-die’s estate.
The consideration furnished rule likely benefits the IRS when an estate is taxable for federal estate tax purposes. The rule benefits taxpayers when all property (including 100% of the JTWROS property) remains below the federal estate tax exemption. In 2012, President Obama signed into law an act creating “permanent” high federal estate tax exemption. According to the Tax Policy Center only about 1.4 out of every 1,000 estates (0.14%) were subject to federal estate tax in 2013. While I am not currently aware of any push by the IRS to change the consideration furnished rule, it will be interesting to see if the IRS changes its tune over time.
As is the case with tenancy in common property, in Tennessee each owner of JTWROS property has a right of partition which permits each owner the ability to force the division or sale of the property. As is the case with most jointly held property, JTWROS does not provide a clear roadmap for property management between multiple parties.
In summary, while a potential advantage to JTWROS is avoiding probate at the first death, it is important to understand the other non-tax and tax consequences of JTWROS to ensure such property is consistent with your other estate planning documents and helps achieve the joint owner’s overall desires during both during their lifetime and at their death.