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Why Joint Tenancy Might Not Be the Most Effective Probate Avoidance Strategy

Why Joint Tenancy Might Not Be the Most Effective Probate Avoidance Strategy
December 31, 2015 weberlaw

One of the most popular and widely discussed approaches to averting the probate process involves taking title to assets in a way that they are handled outside probate.  A husband and wife might take title to their home in the form as “joint tenants with right of survivorship” for example.  When owners of a home or land take title in this form, the property passes to the surviving joint tenant(s) when one of the tenants passes away.  Real estate is not the only asset that can be held in joint tenancy to avoid probate, but legal advice is important before using this estate planning approach to avoid problems.  Some of these potential issues include:

Joint Tenant’s Incapacity: If a joint tenant becomes incapacitated by a serious illness or injury, the remaining joint tenants could be forced to deal with obstacles when attempting to refinance or sell the property.  A probate judge might need to approve such transactions which can cause unacceptable delays.

Failure to Avoid Probate: Despite the common misconception that taking title to a property in joint tenancy will avoid probate, this approach only postpones the probate process.  While the property will automatically pass to a joint tenant upon death of the other joint tenant, the surviving owner will need to prepare a trust to transfer the property without the need for probate prior to his or her death.  Whether there are two joint tenants or a dozen, this form of ownership only postpones the need for estate planning alternatives to probate until the last joint tenant passes away.

Creditor Liability: If any of the joint tenants are subject to creditor enforcement actions, the property can be exposed to liens.  Obligations like unpaid taxes, delinquent child support, and court judgments can result in a cloud on title and debt enforcement procedures.

Unintentional Disinheritance: When a joint tenant, who is one of two married joint tenants, passes away, the surviving spouse will take ownership of the decedent’s interest in the property through right of survivorship.  Although this might be the desire of the co-owners, there are situations where the pre-deceased spouse’s children are disinherited.  Since the surviving spouse will inherit the other spouse’s interest in the property as joint tenants, this interest in the property will pass entirely to the surviving spouse’s children.

Loss of Control: If an adult child is added as a joint tenant for inheritance purposes, the child can exercise immediate control over the property.  This arrangement can be problematic if the adult child decides to encumber the property by using it as security for a loan or to sell his or her interest to an outsider.

Liability for Gift Taxes: An unintended consequence of making an adult child a joint tenant (co-owner) on a plot of land, family home, or even a savings account is that federal or state tax authorities might deem such a transaction as a taxable event.  Taxing agencies have attempted to collect gift taxes against an adult child working as a caregiver for a parent after the child was made a joint signer on a savings account.

If you have estate planning questions, we welcome the opportunity to talk to you and answer your questions.  We invite you to call the Wichita Estate Planning Lawyer at the Weber Law Office at 316-265-7802 or to submit an inquiry form through this website to schedule your initial consultation.