Is Joint Tenancy Right for You?

legal2Benefits of Joint Tenancy

Avoids Probate

  • Joint tenancy is a popular way of passing property without going through probate. This legal term generally means co-ownership.
  • For example, if you and your spouse buy a house together, or open a checking account in both your names, unless you title those assets otherwise, each of you is a joint tenant and co-owners.
  • When one of you dies, the decedent’s interest in the asset is extinguished by operation of law, and the other simply continues ownership of the asset without the decedent.
  • In short, the surviving joint tenant becomes the only owner. This is so regardless of what each of you wrote in your respective Wills.

Transfer of Property at Death

  • Joint tenancy can be a useful method of transferring property at death.
  • Automobiles and bank accounts are often passed on to others that way. Often, in old age, people place bank accounts or stocks in joint tenancy with one or more children or friends.
  • Joint ownership gives co-owners instant access to those accounts to help pay bills during their joint lifetime and after one of them dies.
  • The transfer of such funds to a joint tenancy account avoids probate for such accounts. But, there can be problems, and many lawyers caution against using joint tenancies, especially for people with larger estates.

9 Reasons You Might Not Want Joint Tenancy

1. When You Don’t Want to Lose Control

If you made your children co-owners of the house, you couldn’t sell or mortgage it unless they all agree.

2. When Concerned About the Co-Owner’s Credit

A co-owner’s creditors might be able to seize part of the house or bank account held in joint tenancy.

3. When Not Secure in the Relationship with the Co-Owner

  • You and your co-owner could have a falling out, and he or she could take all the money out of the bank account.
  • For married couples, your individual separate property is presumed to be community property in California once it’s transferred into joint names.
  • If you are in a shaky marriage, transferring your separate property into joint tenancy is apt to weaken your financial position in the event of divorce.

4. When Using Co-Ownership to Substitute for a Will

  • Often, parents with several children will put one child’s name on an account, assuming he or she will divide the money equally among the other children following the death of the parents.
  • But this method provides no control over the money, and that child can do with it as he or she pleases.

5. When it Might Cause Confusion After Your Death

Unplanned ownership of property often leads to unwanted results, especially for people unable to manage finances.

6. When it Will Not Speed the Transfer of Assets

Some states automatically freeze jointly owned accounts upon the death of one of the owners until the taxing authority can examine it, so the surviving owner cannot count on getting to the money immediately.

7. When it Compromises Tax Planning and Bill Paying

Careful planning to minimize the taxes on an estate, and maximizing funds available to pay taxes and other expenses on estate property, can be completely thwarted by an inadvertently created joint tenancy which passes property outright to the co-owner upon the other owner’s death.

8. When You or Another Joint Tenant Might Become Incompetent

  • If this happens, part of the property may go into a conservatorship making it cumbersome at best if the other joint tenants want to sell a house or stock.
  • Each joint tenant is required to sign documents on most major transactions involving joint tenancy property.
  • If one of the joint tenants is mentally incapacitated, everything will have to wait until the probate court takes control of the asset.
  • The court, in effect, becomes a joint owner and will continue to have a say in the control of the property until the incapacitated owner recovers or dies.
  • Additionally, an attorney will have to be appointed for the mentally incapacitated joint owner.
  • The entire process becomes very expensive and time-consuming.

9. When You Do Not Want to Transfer Assets All at Once

Joint tenancies deprive you of the flexibility of a Will or trust, in which you can use gifts and asset shifting to minimize taxes, and pay out money over time to beneficiaries, instead of gifting it to them all at once.

 In Summary

  • If you have an estate valued at below the amount that can be passed free of federal estate tax on your death, it might be alright to use joint tenancy. Most of the advantages of joint tenancy can also be achieved using a living trust.
  • Some states, such as California, allow use of pay-on-death accounts that will give access to the account to whomever you name as the beneficiary.
  • Finally, you should check with your lawyer to see which strategy is right for you.

Ranch Bernardo Senior Services provides free legal consultations every Monday.

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