Joint Tenancy and its Perils

Joint Tenancy
Joint Tenancy
The Risks of Joint Tenancy

Joint Tenancy – it is quick, convenient, and tempting. It used to be called “The Poor Man’s Will.” And it is fraught with potential disaster. Consequently, aside from marital funds, you should be very cautious of ever using it to title assets.

It is effortless to add someone’s name to a title. This is done by quitclaim deed or by adding a name to your bank or another financial account. Joint tenancy as a form of legal title has the “right of survivorship.” ROS means when one joint tenant dies, the surviving title holders assume ownership. However, in every form of joint tenancy, there is a risk that you should not take.

Real Estate in Joint Tenancy

Real estate not held in the name of a trust, corporation, or LLC is either titled in a single name or multiple names, with each titleholder sharing equal ownership. Conversely, as stated above, Joint Tenancy has the right of survivorship. As a result, it is a common way to hold title to marital real estate. However, married couples often believe that joint tenancy avoids probate. It doesn’t. Joint Tenancy only delays probate until the death of the surviving joint tenant.

Probate

Probate exists primarily because no one can sign another person’s name. For example, if you become incapacitated or when you die, property held solely in your name must go through the long (1-2 years) and expensive Probate process. As a result, probate must happen even if you have a will and property in your name because a judge must still appoint an executor in probate court. The Executor will administer your Will and oversee the distribution of your estate.

To avoid Probate, you should hold title to all your property in a Living Trust instead of in your name.

Other Common Forms of Title

Another form of tenancy for real estate is Tenants in Common, which does not have the right of survivorship. It goes directly to probate to transfer ownership to the deceased titleholder’s heirs. Finally, a common tenancy is Tenants by Entirety. TBE is essential for all police officers and high-risk professionals who are married. It provides complete asset protection for the principal place of residence against creditor claims and judgments from lawsuits for as long as the spouse resides in the home.

In addition to Probate, both Tenants in Common and Joint Tenancy hold the significant risk of exposing the property to the creditor and legal claims of every person on the title. Therefore, creditor risks are a compelling reason never to add children to your title. Finally, adding a name to your title triggers a capital gains tax issue.

Financial Accounts in Joint Tenancy

Often, seniors add their children’s names to a bank or other financial accounts. Here are three reasons you should never do it:

  1. Risk of Intentional or Unintentional Loss: There is no legal protection to prevent a person named on an account from taking any or all funds from that account at any time. Strange things happen to people around money. You may undoubtedly love and trust your kids, but unforeseen circumstances, inlaws, or outlaws, in this case, may influence your child.
  2. Unexpected Disability: If your child acquires a disability by accident or illness, their eligibility for Medicaid or SSI could cause your financial accounts to be spent down.
  3. Unintentional Disinheritance: The surviving joint account holder has total control and ownership, and even if you trust your child to do the right thing and share the account with siblings, that child might die, acquire a disability, or end up in divorce proceedings before it happens.

Except for Tenancy by Entirety – for a limited period in certain circumstances – all your property and financial accounts should be held in a Living Trust. Importantly, a Living Trust will protect against the above risks and provide you and your family peace of mind.

Living Trusts

A Revocable Living Trust is a written, legal document allowing you to pass your assets (real property, bank accounts, stock, saving certificates, personal property, etc.) to your family, friends, or charities after your death – outside Probate Court. (Remember, all Wills are subject to Probate. ) Your life insurance policies and deferred compensation accounts can name your Living Trust as beneficiary, subject to essential tax considerations.

Contact us today for further information or visit Tuohy Law Offices now.

Tom Tuohy

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Tom Tuohy

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This blog entry has been created for information and planning purposes. It is not intended to be, nor should it be substituted for, legal advice, which turns on specific facts and laws in specific jurisdictions. No reader of this blog should act or refrain from acting based on any information included in, or accessible through, this blog without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the reader’s state, country or other appropriate licensing jurisdiction.