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Joint Tenancy: A Double-Edged Sword


Be wary of the "simple fixes"!

There are many ways to own your assets. When you die, it is only natural that you want your family to share in the bounty of your hard work. As a way to simplify the transfer process and avoid probate, you may be tempted to add a child or other relative to the deed or bank account utilizing the ownership type of joint tenancy with the right of survivorship (JTwROS). While this type of ownership delivers a lot of potential benefits, it may also be masking some dangerous pitfalls.


Under JTwROS, when one owner dies, the other owner(s) inherit the deceased owner’s share of the property proportionately. Its benefits are specific: ownership is transferred automatically without entering probate. Because the property is transferred outside of probate, it is possible to keep this inheritance out of the clutches of creditors of your estate. On the surface, this seems like a smart way to streamline the inheritance process, sidestep creditor baggage, and bureaucratic charges. But the risks may outweigh the benefits.


You May Pay the Price

One of the main problems with JTwROS is that when you enter into this kind of agreement, you open yourself up to additional liability. When you agree to a JTwROS, you put your assets on the hook for the other owners’ creditors, ex-spouses, and flights of fancy.


Another problem with JTwROS, as it relates to real estate, is that there are now multiple owners of the property. You must now get the approval of the other owners if you would like to mortgage, refinance, transfer, or sell the property. It does not matter if you are the only one who is occupying the property or paying the expenses, by adding additional people as owners, you are giving away control.


With respect to any bank accounts, once you add an additional owner, that individual, as an owner, has the right to go to the bank and withdraw whatever money is in the account. The bank is merely going to make sure that the individual is listed on the account and will freely turn over your money to him or her. If a joint owner’s creditor serves the bank with a garnishment order, they can also seize the money in the account, even if the joint owner was only added to help avoid probate.


Disinheriting Loved Ones

While JTwROS can have some impacts on you, it can also disrupt your estate plans because instead of property getting handed down, it is handed over. For example, if someone with children remarries and a new spouse is added to the deed as a joint tenant, the new spouse will inherit the property, not the kids or grandkids. Because there’s a new spouse involved, the new spouse’s family will then be the ones to inherit upon his or her death, leaving the whole ‘branch’ of the original family may be disinherited—and not always intentionally!


Your Joint Tenant Could Pay the Price

Very often, as a way of avoiding probate, some property owners add a child or other beneficiary to their deed as a joint tenant. Be wary of simple fixes! Depending on where you live and when you add the joint tenant to your deed, the surviving joint tenant (child or beneficiary) can have a very expensive surprise in capital gains taxes when they decide to sell the property. That is because, at death, your beneficiary inherits your property at the "value at time of death." This is known as a "stepped-up basis". But, if you added the joint tenant well after you purchased the property, it is possible for them to lose the stepped-up basis and have to pay taxes on the gain between the sale of the property and the "original" purchase price. That could be a tax in the ten of thousands of dollars, presumably not what you intended.


Questions? Schedule a Discovery Session

Although there are some advantages to a JTwROS, do not let simplicity or speed be your only measures. Click here to schedule a complimentary Discovery Session. so we can discuss all of your options and work toward tailoring a solution to fit your needs.

"Living with your bags packed!"