Do you own your home, other property, or a financial account with someone else, such as a spouse or an adult child? If so, you might be surprised to learn that a common way of owning property could cause problems for your loved ones in the future.
While there are several forms of joint ownership, the one most people use is called joint tenants with right of survivorship. When you and another person own an account or property as joint tenants with right of survivorship, it means that, when one owner passes away, the surviving owner automatically takes over full ownership. If there are more than two joint owners, the deceased owner’s interest is divided equally among the surviving owners. All this happens instantly under the law, no matter what your will or trust might say.
Joint Ownership Postpones Probate
Many people think that owning property jointly allows them to avoid probate completely. Probate is the court process of transferring a person’s solely owned accounts and property that has no beneficiaries when the person dies to their heirs-at-law. While joint property ownership avoids the probate process when the first owner passes away, it does not guarantee that probate will be avoided forever. When the last surviving owner dies, probate will be required unless that individual added a new joint owner, named a beneficiary, or placed the account in a trust before they passed away. And if all joint owners die simultaneously, probate may be required immediately.
Joint Ownership Can Cause You to Unintentionally Disinherit Your Children
This situation is one of the most common and heartbreaking surprises for families. Your will or trust has no say over accounts and property you own jointly with someone in a way that provides for survivorship rights. Your share of accounts and property that you own jointly with right of survivorship will automatically go to the surviving owner or owners. The following are a couple of possible scenarios:
- If you add your spouse as a joint owner with survivorship rights—and your spouse is not the parent of all of your children—you could unintentionally disinherit your children. When you pass away, your spouse will automatically become the sole owner of the entire account or property and can leave it to whomever they choose. There is no way to guarantee that it will go to your children.
- If you add one of your children as a joint owner with survivorship rights, that child will automatically inherit the entire account or property when you pass away, leaving your other children with nothing. The child who owns the property will have no legal obligation to share it with their siblings.
Here is an example:
Robert inherited his family’s vacation home upon the death of his father. Robert decided to add his wife, Joan, to the title of the home as a joint owner with rights of survivorship to avoid probate. After Robert died, Joan became the sole owner of Robert’s family vacation home. She remarried a few years later and added her new spouse’s name to the home’s title as a joint owner, also with the right of survivorship. When Joan died, her children were shocked to learn that the new husband would become the sole owner of the property, even though their father had always promised that it would stay in the family and be left to them.
Other Risks of Joint Ownership
- While adding a co-owner’s name to a deed or account is easy, removing someone’s name can be difficult. Typically, all co-owners need to sign off on future ownership changes. If your co-owner does not want to be removed from the title, you may have to go to court, which may not be successful.
- Your accounts and property are exposed to the other joint owner’s debt and obligations. For example, if you add your adult son to your home’s deed and he is successfully sued, you could be forced to sell your home to satisfy the judgment.
- When adding an owner to your account or property without receiving anything in return, you are making a gift to them. Depending on the value of the account or property, there could be gift tax consequences. Even if the gift is not large enough to create gift tax liability, the amount of the gift could reduce your available lifetime exclusion.
- If you need the co-owner to sign off on something related to the property—such as selling or refinancing a jointly owned home—and your co-owner is incapacitated (unable to manage their own financial affairs), problems can arise. If your co-owner has no valid financial power of attorney, you will have to ask the court to appoint someone to sign on their behalf (even if that co-owner is your spouse). Once the court gets involved, it usually stays involved to protect the incapacitated owner’s interest until their incapacity ends or they die.
Next Steps
Avoid leaving your family’s future to chance. A simple review of how you own your accounts and property can help ensure that your estate plan works the way you want. We can help you understand your options and protect your loved ones. To avoid both inconvenience and tragedy, call our office immediately to set up an appointment and have the ownership of your accounts and property reviewed.
Joint ownership may seem simple, but as you can see, it can put your accounts and property—and your loved ones’ inheritance—at risk. The good news is that these problems are preventable. We are here to help you understand your options and find the right solutions for yourself and your loved ones.
Barreau Legal, PLLC is an estate planning law firm located in Port St. Lucie, Florida; Orlando, Florida; St. Paul, Minnesota; and the District of Columbia. It has the background and knowledge to craft a solid estate plan to help preserve your legacy for generations to come. Barreau Legal, PLLC would love to hold an Initial Planning Session to discuss building your Generational Wealth Plan! If you have concerns about how your assets will pass when you die, ensuring your wishes are protected during your lifetime, or keeping your estate out of probate, please reach out to Barreau Legal, PLLC for your Initial Planning Session at 772-236-5204.