I own 46 acres of land with another person as TIC with an undivided equal interest. I want to build a home on the land, are there any legal considerations I must be aware of if I proceed? Does the other co-tenant have any rights to the home or any say-so in the home building process?

Here’s a section from Wikipedia about breaking a Joint Tenants With Right of Survivorship. They should never be entered into lightly and are much rarer than tenants in common. I’m glad you brought this up as my Mom and sister bought a house JTWROS and may need to change that due to a change in circumstances.

From Wikipedia:

“Breaking a JTWROS – The co-tenant in property owned by a JTWROS can break the JTWROS as to their interest in the property at any time by conveying their interest in the property to another person. Under the old common law, this required an actual exchange with a straw man – another person who would buy the property from the co-tenant for some nominal consideration, then sell it back to the co-tenant at the same low price.

Many states now permit a joint tenant to break the JTWROS without a straw man, simply by executing a document to that effect – even if that owner does not inform the other owners. In either case, the JTWROS will, again, revert to a tenancy in common as to that owner’s interest in the property.

There is a big problem that is possible with the simple document execution method. In the straw man approach, there are witnesses to the transfer. With the document, there may not be witnesses. With either method, as soon as the break occurs, it works both ways. Because there may not be witnesses, the party with the document could take advantage of that fact and hide the document when the other party dies.

It is important to note, however, that if there are three or more owners, and only one of the owners breaks the JTWROS, the other owners remain in the JTWROS as to each other.”

Of course the internet is no substitute for a local attorney, but hope that sheds some light on the situation, and helps you formulate the questions to ask an attorney.

Presumably the TIC Agreement would NOT say 50/50 ownership given that one party put down all the cash. That’s the point of the Agreement, to establish a percentage ownership consistent with the actual amounts paid by the parties. Nonetheless, if the parties want 50/50 ownership despite the fact that one party put up all the cash, then I think you’re right, there may be gift tax implications. In fact, the gift tax may be implicated without a TIC Agmt because the law assumes 50/50 ownership. Either way, this issue is beyond my level of expertise, and you’re right, an accountant would be helpful (although a tax lawyer might be the best resource).

As an aside, the gift tax is not what people think. Everyone has a lifetime right to gift $300k+ (not sure of exact number) tax free. Gifts in a lifetime that exceed that amount incur a tax libility on the part of the giftor. Any gift in excess of $12k (I believe that’s the current number) count against the lifetime exclusion and must be reported on a gift tax return.

As for buying property together prior to marriage — you’re right, that is a big deal and the buyers should discuss the matter with an attorney before doing so so that they are fully informed. An accountant’s input would have minimal value, though, as the real issue is the percentage ownership of the property and the implications of using one party’s funds for purchasing the property in both parties’ names.

Finally, as for raising red flags and insuring that your client seeks appropriate guidance, but not providing such guidance yourself — I think that is exactly what is required under the law. More evidence of the quality of representation that you offer…

One issue that comes up VERY often is purchasing in contemplation of marriage. Many couples purchase a property just a month or two, or even the week before, the wedding. Often all of the monies are coming from only one of the two for the downpayment.

I always recommend both legal and tax advices in that case, given a TIC could result in a taxable gift. Also, even if they DO get married and stay married for a long time, whose property it was at time of purchase could make a huge difference in a divorce settlement, regarding separate vs. joint property.

While this particular post primarily involves both individuals being needed to qualify for the house, there are significant issues when buying jointly in anticipation of marriage, when the income and assets needed only belong to one of the two parties.

I never need to or even want to know HOW the parties are doing it. But I always need to know that they sought the proper legal and tax advices before doing it. I never want to be in the room with the lawyer and tax accountant and my client(s) during that one. That’s like sitting around during the writing of a pre-nup…TMI!!!

Yes, Craig…there are times when I raise the red flags, and then back out of the room. When I write it, I need to know that the person signing it has considered the consequences of their actions. If they say “I already went over it with my advisors”…end of conversation.