Joint Tenancy Pitfalls: The ‘Simple’ Fix that Can Leave Your Family Broke

There are many ways to own your assets. Typically people want their family to receive their savings as quickly and simply as possible. 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 right of survivorship” (JTwROS).  While this type of ownership delivers a number of potential benefits, it may also unintentionally create an unfortunate outcome.

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 may be possible to keep this inheritance from creditors of your estate.   On the surface, this seems like a smart way to streamline the inheritance process, sidestep creditors and avoid bureaucratic charges and process. But beware, the risks may outweigh the benefits.

You May Pay the Price — by adding additional people as owners, you are giving away control!

One of the main problems with JTwROS is that when you enter into this kind of ownership, you potentially open yourself up to the liability of your joint owners including their creditors and ex-spouses.

With respect to any bank accounts, once you add an additional owner, that individual 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 for your convenience or to help avoid probate.

As it relates to real estate with multiple owners, you must get the approval of all 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.  Additionally, while the proceeds of sale are divided equally between joint owners, only the persons who live in the house may claim an exemption from capital gains tax on sale proceeds of the house.

Disinheriting Loved Ones

JTwROS can also disrupt your estate plan where there are inconsistencies in the way accounts are titled, the amounts in accounts, or taxable status of accounts.  Also, keep in mind that since your Will does not control the disposition of these assets, any special provisions contained in your Will are irrelevant to the disposition of these accounts.  Some examples of special provisions may include repayment of a loan or protective trusts to protect against creditors or for disabled individuals.

Questions? Give Us a Call

Don’t let simplicity or speed be your only measures. Give us a call so we can discuss all of your options and tailor a solution that will best fit your needs.

facebooktwittergoogle_plusredditpinterestlinkedinmail