Should your home, bank accounts or other property be held in joint tenancy with your partner or other family member? Many people comment to me that they don’t need an estate planning attorney because they own all their property as Joint Tenants with Rights of Survivorship. If they die, the property will automatically belong to the other joint tenant. No need for a Will or a Trust. No need for Probate. No need for an attorney’s services.
Unfortunately, life is rarely that simple. There are numerous pitfalls in joint tenancy:
* Joint property is exposed to the liabilities of either or both owners. If one
owner gets a judgment against him or her, the entire property may be taken
to satisfy that judgment. If one is a doctor, lawyer or sole proprietor of a business
in a highly litigious field, or if one is found at fault in an accident, or if one owner
has a tax lien placed against the property, this may be the worst way to hold title.
* Joint owners lose individual control over the property. For example, with real
property, one owner has no right to act alone in selling, making improvements,
or refinancing the property.
* If one joint owner becomes mentally incapacitated, the property is in legal limbo.
The owner can no longer convey legal title or sign ownership papers. This can
prevent property such as a home from being sold or rented. It usually requires
the healthy owner to go through a lengthy and expensive conservatorship
process in Probate Court.
* When property passes to another owner through joint tenancy, that property
is left outright, meaning there are no strings attached. The danger is that the
surviving owner can then leave that asset to his new partner, or anyone else he
chooses, and the first owner’s share of the estate never makes it to his own
heirs. The last owner to die wins everything.
* When the first owner doesn’t do any estate planning, usually the second owner
doesn’t either. Although probate may be avoided at the first one’s death, it will
not be avoided upon the second owner’s death. In the event of simultaneous
death, all assets held in joint tenancy must go through probate since both owners
of record are no longer living.
* Even if the joint tenants do have Wills or Trusts, the surviving partner will receive
the deceased joint tenant’s interest in the property, regardless of what that
owner’s Will or Trust says. Wills and Trusts have no control over jointly owned
property.
* Finally, transferring property into joint tenancy may have tax consequences. If
you place another person on your bank account or a deed as a joint tenant, you
have just given that person a gift. If the value is less than your annual gift
exemption of $14,000.00, there may be no problem. If it exceeds that figure, you
must file a gift tax return with the IRS. You may or may not owe taxes on the gift,
depending upon your financial situation.
I hope you will give the joint tenancy risks careful consideration before you try to use it as a do-it-yourself estate planning tool. For very small estates such as those having only moderate sums in a bank account and no real property, joint tenancy can work to avoid probate and smooth the transition when a joint owner passes on. For most other estates, there are various planning tools that reduce or eliminate the risks of joint tenancy, and make far more sense.
Careful estate planning and correct property titling are especially important for same-sex couples. For partners who are not married or registered as domestic partners, it is essential to maintain as much individual control over property as possible. Couples can own homes together; have joint and individual bank and investment accounts; and own other property that they share equally, without the pitfalls of joint tenancy.
Many of my clients are same-sex couples who own various assets together. Often, we find that individual Revocable Living Trusts are the best way to maintain their property and allow each partner maximum flexibility and control over their shares. Each one creates the necessary documents to control how assets will be managed if incapacity or death should occur, and this allows each partner to pass his share on to whomever he names in the Trust. Each one has a plan that covers many of the risks in life, and gives partners greater peace of mind about the future.