The Perils of Joint Tenancy

3 Oct, 2018//Posted by : admin//Category : Uncategorized

While the desire to avoid the costs and delays of probate is understandable, the living trust mechanism, at least in the case of real estate assets, is the preferred mechanism to do that. However, whether in a fear of, or hostility toward, the legal profession, some folks attempt to either fashion an estate plan off the internet, or otherwise use self-help in organizing their estate plan. Intelligent people who would never consider fixing their own computer, automobile, extract their own teeth, or perform an appendectomy on themselves, feel that legal arcana is no big challenge, and make plans that are doomed to unintended consequences.

In my experience, the worst expression of this homemade estate planning is the transfer of one’s major assets to joint tenancy title with anyone but one’s spouse. I have seen many post mortem family disputes when a parent puts one of several kids on a house, bank, or investment account, with the unwritten understanding that said kid will distribute such asset or assets among the others. After the Decedent’s funeral, and the surviving joint tenant seeks legal advice, they are usually informed by counsel about the most volatile feature of joint tenancy: right of survivorship. Stated simply, the joint tenants own an undivided interest in the entire asset, and when any one joint tenant dies, the surviving joint tenant(s) own the whole thing. Period. Much of the time, this aspect of joint tenancy was never discussed or explored by, or with, the Decedent. If it was, it was generally to the unwritten understanding that the surviving joint tenant will see to it that the asset is shared among the other siblings, children, step-parents, whatever. However, even if the sentiment that all the “estate” is to be shared by others is expressed in a will or a trust, the provisions of those documents are not effective as to joint tenancy assets. Serious problems can develop when the surviving child joint tenant begins to take that survivorship feature seriously. In other words, they become convinced that Mom or Dad meant them to be the chosen and favored one. They can be persuaded of that by their record of parental care giving, input from their spouse, their friends, their attorney, or any number of influences. Its not hard to become enamored of receiving all of a $500,000 assets instead of just a fractional share.

Besides this possible outcome, the very fact that an asset is in joint tenancy creates possible problems with joint tenants. Everyone has heard of some spouses, while going through bitter separations, divorce, etc. cleaning out the joint marital bank accounts, selling the car, house, etc. They can do that because that is what joint tenancy allows. Any of the joint tenants can transfer the whole asset. In the case of real estate, title in joint tenancy with a child or other, can cause much mischief and unintended consequences. For example, Mom or Dad wants to sell or borrow money on the family home, which they have put in joint tenancy. Sometimes the other joint tenants do not approve of that transaction and fail to cooperate, causing the true owner to lose control over their assets to a disapproving child. Also, picture such child/joint tenant going through a divorce themselves, or wiping out a family of four in a crosswalk without adequate insurance. It doesn’t take much imagination to see what problems the attorneys on the other side of those situations will do when they conduct even a cursory investigation into assets.

I am not a tax attorney, so I will not get into the possible capital gains, property tax reappraisal, and even gift and estate tax confusion that results with joint tenancy. Let me just say, it is seldom good or intended. Except in very special circumstances, holding assets in a well drafted revocable living trust is the best way to go.