A tenants in common account is a type of joint account that has multiple individual owners, with each owner holding a percentage ownership of the account. This type of account ownership allows ownership stake to be retained by that owner’s estate and beneficiaries based on instructions in a will. It can be used to establish accounts for holding cash, securities, or real estate, while offering protection of assets when it comes to estate planning. In addition to offering advantageous investment features for those looking to pass down ownership to intended beneficiaries, a tenants in common account has its own set of regulations that are specific to the investment features it provides.
The North American Securities Administrators Association (NASAA) stipulates that once a tenants in common account owner has deceased, their share of account ownership will be legally retained by the decedent’s estate according to his or her will. This type of account setup prevents a deceased owner’s assets from being absorbed by the remaining surviving owners.
By establishing this type of joint account, a tenant’s heirs or beneficiaries can inherit the decedent’s assets without having the confusion and uncertainty that often arises in the events of an untimely death. These assets can consist of money, securities, and real estate property. It is possible for tenants in common to own unequal interests of the same joint account. Given that undivided ownership is bestowed upon the respective account owners, each can hold, buy, sell, mortgage, or transfer their portion of ownership.
Investment regulations set forth by the United States Securities and Exchange Commission (SEC) recognize joint accounts as being either joint tenants with right of survivorship, transfer-of-death, or tenants in common. Joint tenants with right of survivorship accounts stipulate that a decedent’s ownership stake be passed onto the surviving tenants of the account, where a transfer-of-death account will have a decedent’s assets transferred to named beneficiaries but not necessarily according to the decedent’s will. When establishing any type of joint account, signatures are required from all account holders.
Tenants in common as a real estate investment vehicle is used as a channel for investors to defer payment of capital gains taxes on investment property. This is where an investor is prohibited from having access to the proceeds generated from the sale of a real estate property. These proceeds must be held by an exchange intermediary before being used for further purchasing activity. With tenants in common real estate investment vehicles, adhering to compliance with Section 1031 of the Internal Revenue Code can be complicated and should always be carried out with qualified professional expertise.