Know What You’re Getting Into When Considering Joint Tenancy

18/08/2008

People often buy real estate as joint tenants. But what happens in the future if their circumstances change?

If a joint tenant dies, that person’s interest in the property automatically goes to the other joint tenant. The deceased can’t gift their interest in the property in their Will.

Compare this to a property that is owned by two or more people as “tenants in common”. In this situation where one of the tenants in common dies, that persons interest in the property becomes part of the deceased’s estate to be passed on to his or her beneficiaries in accordance with their Will.

In the case of Cetojevic & Anor. v Cetojevic 2007 a man and his parents purchased a property as joint tenants, and after several years where significant changes occurred in the younger man’s life – including taking a wife and becoming a father – the younger man died.  The widow made a claim against the property as the beneficiary of the deceased’s estate, but the parents of the young man claimed that all of the property passed to them as the surviving joint tenants.

The primary judge looked at the facts of the case and determined that the joint tenancy had ceased to exist and the widow was entitled to her deceased husband’s interest in the property.  This is despite the fact that the young man and his parents intentionally entered into the joint tenancy, and at the time of entering into the joint tenancy they had full knowledge that upon the death of a joint tenant that persons interest in the property would pass to the surviving joint tenants.

The court determined that the joint tenancy was in fact a joint endeavour that had come to an end without attributable fault on anyone’s part and that the beneficial interest in the asset acquired for the purpose of that endeavour should be shared equally. The legal term for what the court determined existed is a “constructive trust” and this constructive trust prevails over the survivorship principle of the joint tenancy.

So why did the courts find that a constructive trust existed? They found that despite the fact the joint tenancy was intentionally and knowledgably entered into by the parties, circumstances had arisen which were so outside the contemplation or intentions of the parties at the time of entering into the joint tenancy that it can be fairly said that the joint tenancy had broken down.

The circumstantial changes in this case were the facts that the young man had become a husband and father, and no longer chose to live in the house that was the subject of the joint tenancy. This was considered to be sufficiently outside the contemplation and intentions of the parties at the time of entering into the joint tenancy that the joint tenancy had broken down.

Clearly, if you are a property owner, and your circumstances change, you need to consider what impact these changes may have on your interest in the property.

Townsends provides complete estate planning services. Please give us a call if you would like to discuss your property issue or your estate planning needs.