Forms of Ownership: Joint Tenancy

Perhaps the most confusing type of Individual ownership when it comes to property taxes is Joint Tenancy, which is different from Tenancy in Common discussed in an earlier post.

Joint tenancy

Like Tenancy in common, joint tenancy is also a form of concurrent ownership in real property. However, joint tenancy is characterized by equal undivided interests in property. If the interests of the owners are not equal, it will not be a joint tenancy.

In the joint tenancy form of ownership, the owners are called co-owners, co-tenants, or joint tenants. A joint tenant has an equal share of the property and is entitled to the simultaneous possession of real property.

A joint tenant has a right of survivorship. This means that upon death of the joint tenant, his or her interest in the property is equally divided and transferred to the remaining joint tenants. There is no need to transfer the interest of a deceased joint tenant. The transfer of interest occurs automatically by operation of law.

Since, the property in joint tenancy transfer automatically on death of a joint tenant, there occurs a change in ownership when a joint tenant dies. Subject to conditions, this change in ownership on death of a joint tenant may or may not result into reappraisal of property held as joint tenancy.

Illustration

Sheila, Sara, and Shirley acquired property in 2000 as joint tenants. Sara died in 2002 and Shirley died in 2006.1. What is the share of property transferred in 2002, and 2006?2. What percentage of ownership each survivor had in 2002, and 2006?

At the time of acquiring property, Sheila, Sara, and Shirley were joint tenants; therefore, each of them has an undivided 1/3 interest in the property.

The death of Sara in 2002, resulted in a change in ownership of 1/3 of the property i.e. Sara’s share.

When Sara died in 2002, her joint tenancy interest automatically passed equally to Sheila and Shirley. They were remaining joint tenants. Each of them had an undivided 50 percent interest in property.

When Shirley died in 2006, her joint tenancy interest automatically passed entirely to Sheila. She automatically became the sole owner of the property.

The death of Shirley in 2006 resulted in a change in ownership of 50% of the property i.e. Shirley’s share in 2006.

Joint tenancy and change in ownership

The creation, transfer, and termination of a joint tenancy interest are changes in ownership in the interest transferred. Upon a change in ownership of a joint tenancy interest, only the transferred interest is reappraised.

Illustration

Identify change of ownership and the extent of change in ownership for the purpose of reappraisal in following cases:

1. Mr. Salmon and his wife Sally purchased property as joint tenants from Angelina.

2. Julia and David Bond were joint owner of property. They sold the property to Kelly and Natalia as joint tenants. 

3. Cara Edwards and Hugh Crawford were joint owners of property. Cara sold her share to David.

In situation at serial No. 1, the transfer is a change in ownership of entire (100%) property.

In situation at serial No. 2, the transfer is also a change in ownership of entire (100%) property.

In situation at serial No. 3, the transfer is a change in ownership of ½ (50%) share sold by Cara to David.

All three changes in ownership will be appraised to the extent of transfer of share unless an exclusion applies.

Illustration

Maria owns property as a sole owner. She transfer her property to herself and her friends Sally and John as joint tenants. Is it a transfer for the purpose of Property Tax? Will it trigger reappraisal?

The transfer to herself and her friends as joint tenants gives Maria the status of original transferor. The property stands transferred, but it will not be reappraised. The original transferor exclusion will apply.

There are several advantages of obtaining original transferor status including exclusion i.e. no reappraisal despite transfer of the property.  In addition, the transaction that creates the status of the original transferor and subsequent transfers to others do not result in a change in ownership as long as original co-owner is on title.

Co-owners and joint tenants can obtain original transferor status in two ways:

1. When the co-owners transfer property held as tenants in common to themselves and others as joint tenants without adding an additional owner from outside as joint tenant; and

2. When the joint tenants transfer their joint tenancy interests to their revocable trusts for the benefit of all of the other joint tenants i.e. all of them are beneficiary.

Illustration

Kelly is the sole owner of a property worth $600,000. Due to pressing financial need, she deeds the property to herself, Kales, and Somali as joint tenants. Kelly is an original transferor, and Kales and Somali are other than original transferors.

Subsequently, Kales transfers her interest to Kelly and Somali.

Is the first transfer a change in ownership? Will the subsequent transfer trigger reappraisal or partial reappraisal?

No transfer is change in ownership because these transfers include original transferor as a joint tenant in the resulting joint tenancy. Hence, the original transferor remains on title. Since, there is no change in ownership, there will be no reappraisal of the property.

To create original transferor status, all the transferors must on title to the joint tenancy i.e. they are among the transferee joint tenants. If a transferor is not on title after the transfer, no transferor will obtain original transferor status.

Illustration

Cara and Martha owned a property as tenants in common. The Assessed Value of this property for the year 2012-13 was $ 420,000. They paid $ 4,600 Property Tax in 2012-13. Subsequently, they transferred the property to Martha, Lolita, and Marry as joint tenants.

1. If the fair market value of the property is $810,000, how much Property Tax is to be paid for year 2013-14? Two percent adjustment is applicable. 

2. How much Property Tax will be payable if Cara is among the transferees after the transfer?

In situation 1 Cara is not among the transferees. Therefore, Martha does not become an original transferor. The transferees are merely joint tenants. Since, Martha was previous owner, only the transfer to Lolita, and Marry results in a 2/3 change in ownership. Hence, 2/3 of the property will be reappraised at current fair market value.

In this situation, 1/3 of the property will not undergo a reappraisal. It is 1/3 undivided share of Martha who was a previous owner of ½ share. The old assessed Value is $420,000.

The County Assessor will reassess new value of 2/3 share of Lolita, and Marry at fair market value i.e. 2/3 of $ 810,000.

Assessed Value and Property Tax 2013-14
Share of Martha 1/3 ($420,000 X 1/3)	$ 14,000
Adjustment 2%	$280
Share of Lolita, and Marry 2/3 (810,000X2/3)	$540,000
Total Assessed Value	$554,280
Property Tax @1%	$5542.80

In situation 2, Cara is among the transferees. Therefore, Martha becomes an original transferor. The transferees are joint tenants and original transferor. Here, exclusion of original transferor will apply and no reappraisal will follow.

In this situation, the old Assessed Value will remain applicable. Only adjustment will be 2% for inflation as given in the illustration.

Assessed Value and Property Tax for 2013-14
Previous Assessed Value	$420,000
Adjustment for inflation	$8400
Total Assessed Value	$428400
Property Tax @1%	$4284

One important point to note about original transferor exclusion is that when the interest of the last surviving original transferor is terminated, the entire property will be subject to reappraisal.

Illustration

Sheila, Jack, Thomas and Nina were old college friends. After retirement they wanted to live together in a property owned by Sheila and Jack. In 2000, Sheila and Jack transferred the property to themselves, Thomas, and Nina as joint tenants.

Sheila died in 2010, Thomas died in 2011, and Jack died in 2012.
When will the property be reappraised for Property Tax purpose if there is any need of the reappraisal under the law?

In 2010 when Sheila died, she was an original transferor; therefore, there was no need of reappraisal because of original transferor exclusion.

In 2011 when Thomas died, an original transferor, Jack, was on title; therefore, there was no need of reappraisal because of original transferor exclusion.

In 2012 when Jack died, no original transferor remained on title. Therefore, entire property will be reappraised because original transferor exclusion will not be applicable.

A spouse of an original transferor can also become original transferor if the spouse acquires an interest in a joint tenancy property during the time the original transferor was on title. The spouse will be considered if the spouse acquires an interest in the joint tenancy property by means of a transfer from the original transferor.

Illustration

Callas and Byre were joint tenants and they transferred their property to Callas, Byre, Cara, and Diana as joint tenants. Diana is Callas’ wife.

Who should come off the title to trigger reassessment of the property?

The transfer in the situation is not a change in ownership because transferors Callas and Byre are among the resulting joint tenants as original transferors.

Diana has also become an original transferor because she is wife of Callas and she received her interest by way of a transfer during life time of Callas.

Only Cara is an “other than original transferor”. Therefore, property will be subject to 100 percent reassessment when Callas, Byre, and Diana come off title. When they will not be on title Cara will be the sole owner to face reappraisal of the property.