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The Risks of Co-ownership of Property

Understanding the risks of co-ownership of property

Many individuals believe that co-owing property with relatives is a cheaper alternative to drafting a will or trust. While this may be true, this strategy has some inherent risks. While owning property with family may let you pass on the asset without going through probate, there are several risks – including taxes, creditor exposure, and loss of control. So, when dealing with property, it is important to weigh the risks of co-ownership (and how to manage them), or consider other methods of estate management entirely.

3 Risks of Co-Ownership You Shouldn’t Ignore

1. Taxes

The first risk of co-ownership is taxes. When a portion of the property is deeded to someone other than a spouse, it is considered a gift, which can trigger gift or estate taxes. It also means that the property will not be subject to the capital gains exception for inheritance if your family sells the property after your death.

2. Creditor Claims Exposure

The second risk is creditor claims exposure. More creditors have a claim on the property when more people have ownership.

3. Loss of Control

Similarly, the more people own a property, the more have control over it. That means other owners can transfer ownership, and then if you decide to sell, you will have to get their permission. And so on.

If you’ve weighed the risks of co-ownership and still decide it’s for you, careful planning is a must. Decide ahead of time who will be in charge of maintenance and repairs, rent and finances, business management and licenses, property showings, move-in and move-out, etc. Also, figure out how you will share expenses; one arrangement is to do so proportionally to your shares in the property. Discuss your short- and long-term goals to figure out what you all want to do with the property. If you plan on renting, regardless of who will manage tenants, it is important to agree on tenant criteria, such as credit score and lease term length.

3 Ways to Title Jointly-Owned Property

Joint ownership also means deciding how to take title the property. There are two options (three for married couples.)

  • Tenants in Common Owning property as Tenants in Common means that each individual owner owns an interest (or share) in the property and either co-owner can sell at any time without the permission or agreement of the other co-owner. When a co-owner of tenants in common property dies, the decease co-owner interest in the property passes on to whomever the decease co-owner named in their will. An alternative to owning property as Tenants in Common is Joint Tenants with Right of Survivorship
  • Joint Tenants with Right of Survivorship – Owning property as Joint Tenants with Right of Survivorship means that each individual owner owns an interest in the property and neither joint owner can sell their interest without the permission or agreement of the other joint owner. When a co-owner of Joint Tenants with Right of Survivorship property dies, the decease co-owner interest in the property passes to the surviving co-owner and not to whomever the decease co-owner named in their will.
  • Tenants by the Entirety – Owning property as Tenants by the Entirety is similar to Joint Tenants with Right of Survivorship, but this form of property ownership is strictly reserved for married couples. When a spouse dies, owning property as Tenants by the Entirety, the decease spouse’s interest in the property passes automatically to the surviving spouse.

If co-owning property is your means of avoid the probate process, there is a less risky alternative. One of the best way to avoid probate and the risks of co-ownership is with a living trust. A living trust is a legal instrument that is established during your life and it is revocable. You have control and can add and remove assets throughout your life. Upon your death, the trustee (e.g., your spouse) distributes the assets to the beneficiaries of the trust.

We are here to help.

If you have questions or would like to discuss ways to protect the property you own, give Andre O. McDonald, a knowledgeable Howard County, Montgomery County and District of Columbia estate planning, special-needs planning, veterans pension planning and Medicaid planning attorney a call at, (443) 741-1088 or (301) 941-7809 to schedule a consultation so we can discuss your particular needs.




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For help with estate planning, special needs planning, elder law or Veteran's Pension Planning needs throughout Howard, Montgomery, Prince George’s, Anne Arundel, and Baltimore County; and Baltimore City, contact McDonald Law Firm, LLC.

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