National Estate Planning Awareness Week 2025: Co-Owning Assets with a Non-Spouse

Estate planning when co-owning assets with a non-spouse requires careful consideration to ensure your wishes are honored and to avoid future disputes. This is particularly important for co-owned businesses or real property, as your share won't automatically pass to your co-owner upon your death unless legally specified.

1. Understanding the Co-Ownership Structure

The first step is determining how you co-own the asset, as this dictates what happens to your share upon your death.

Joint Tenancy with Right of Survivorship (JTWROS) 🤝

• How it works: Upon your death, your interest automatically passes to the surviving co-owner(s) outside of probate.

• Estate planning impact: Your will cannot override this right of survivorship. If your goal is for the surviving co-owner to inherit your share, this structure achieves it simply. If your goal is for your share to go to your family, this structure must be changed.

Tenants in Common (TIC) 🏡

• How it works: Each co-owner holds a distinct, transferable share (which may or may not be equal). Upon your death, your share does not automatically pass to the co-owner; it passes according to your will or, if you have no will, by state intestacy laws (often to your family).

• Estate planning impact: This is the structure that gives you the most control over who inherits your share via a will or trust. If you want your business partner's family to buy out your share, for example, your estate plan must be clear.

Community Property (for spouses in certain states)

• Note: This structure is generally only applicable to spouses in specific states (like California, Texas, etc.) and is not the standard for non-spousal co-owners.

2. Review and Update Governing Documents

For a co-owned business, the Operating Agreement (LLC), Partnership Agreement, or Bylaws (Corporation) are the most critical estate planning documents.

• Buy-Sell Agreement: This is essential. It pre-determines what happens to a deceased owner's share. It should include:

  • Triggering Events: Death, disability, retirement, or voluntary sale.

  • Valuation Method: How the ownership stake will be valued (e.g., formula, appraisal, or a set price).

  • Funding: How the surviving owner(s) will buy the share (often funded by life insurance policies taken out on the co-owners).

  • Why it matters: A buy-sell agreement provides liquidity to your estate (cash for your family) and ensures the surviving business owner can maintain control and continuity.

• Succession Plan: The documents should clearly name who has the authority to step into the deceased owner's shoes temporarily while the estate is settled.

3. Utilize a Will and/or Trust

Regardless of the ownership structure, a Will or Revocable Living Trust is necessary.

The Revocable Living Trust 📜

A trust is often superior for co-owned assets because it can hold your ownership interest directly.

• Benefit 1: Avoid Probate: Assets held in a trust bypass probate, which can be time-consuming, expensive, and public. This is crucial for a business interest, as a lengthy probate process can paralyze operations.

• Benefit 2: Detail Specific Instructions: The trust document can provide detailed instructions for your Trustee (the person managing the assets after your death) regarding the co-owned asset, such as:

  • Instructions to follow the terms of the Buy-Sell Agreement.

  • The acceptable price range for a sale.

  • How long the Trustee can hold the asset before selling it.

The Will

Your will names an Executor who manages your estate. Even with a trust, a Pour-Over Will ensures any assets not placed in the trust during your lifetime are "poured over" into the trust after death.

4. Name Backup Decision-Makers

Estate planning is not just about what happens after you die; it's also about managing the asset if you become incapacitated.

• Durable Power of Attorney (DPOA) for Finances: This document names an Agent (or Attorney-in-Fact) who can manage your financial affairs if you become mentally or physically unable.

  • Crucial for business owners: The DPOA should explicitly grant the Agent the authority to act on your behalf regarding your business interest (e.g., attending meetings, signing contracts).

• Healthcare Directive (or Living Will): While not directly related to the asset, having this in place removes a potential emotional burden on your co-owner and family.

5. Communicate Your Plan 🗣️

Once your documents are in place, the final step is to communicate your plan effectively.

• Inform your co-owner(s): Let them know that you have an estate plan that addresses the co-owned asset and where they can find the relevant buy-sell agreement or contact information for your Executor/Trustee.

• Inform your Executor/Trustee: Ensure they have copies of the documents and understand the agreed-upon arrangement (especially the existence and location of any life insurance policies intended to fund a buy-out).

By clearly defining ownership, establishing a binding exit strategy (the Buy-Sell Agreement), and directing your assets through a Trust or Will, you can ensure a smooth transition for both your heirs and your surviving co-owner.

This post is for informational purposes only. Nothing in this post or on this website should be considered legal advice. Please consult an attorney to discuss your specific situation.