Joint ownership of property can take many forms, including joint tenancy of real estate with rights of survivorship and joint bank accounts. Many people find joint ownership attractive as an estate planning device. It’s true that joint ownership of assets has advantages. It avoids probate, which is a large part of its appeal; when one joint owner dies, the asset typically passes seamlessly to the other joint owner. It’s usually fairly easy and inexpensive to accomplish.
Joint ownership is also a simple concept to understand, and many people undertake it, either on their own or with an attorney’s help, because they think it’s the best option for them. In some circumstances, it may be. But often, there are hidden dangers to joint ownership, and people choose that option only because they are unaware of the alternatives to joint ownership.
Joint Ownership: What Could Go Wrong?
In a perfect world, you would make your chosen beneficiary a joint owner of the asset in question, and upon your death, they would assume ownership of the asset without incident.
In the real world we live in, however, joint ownership can go spectacularly wrong in a variety of ways. With joint ownership, the original joint owner no longer has complete control of the asset. The other joint owner is entitled to use, spend, or encumber the asset. If the new joint owner has debt, the creditor may be able to reach the asset. If the new joint owner is married, his spouse may legally have property rights (dower) in the asset, even if the original owner didn’t intend that.
If the original owner of jointly-owned real estate or stocks decides he wants to sell it, he now has to obtain the permission of the joint owner. And if one joint owner of an asset becomes incapacitated, unless he has a durable financial power of attorney, the probate court may have to become involved to appoint a conservator over his assets, including his share of the jointly owned asset.
In addition to these issues, joint ownership of an asset can trigger gift or estate tax under certain circumstances, and may cause the person to be disqualified from receiving VA or Medicaid benefits. In short, the benefit of avoiding probate (at least until the last surviving joint owner dies) may simply not be worth it.
What to Do Instead of Joint Ownership of Assets
Depending on what you want to achieve, there may be better ways to achieve your ends than joint ownership of assets. For instance, if you want to make sure a piece of real estate ends up in someone’s hands upon your death, consider a ladybird deed. If you have assets in a bank or brokerage account, you can transfer those assets to an intended recipient via a transfer-on-death designation on an account.
Depending on what you want to achieve, there may be better ways to achieve your ends than joint ownership of assets.
And, of course, almost any asset can be placed in a living trust, which allows you to retain control of the asset, designate beneficiaries, and make changes to those designations until you die or become incapacitated.
In short, don’t just tell your estate planning attorney that you want to place assets in joint ownership. Tell him or her why and how you want to do so. Your attorney may be able to guide you to a better mechanism for achieving the goal you have in mind, whether that’s probate avoidance, Medicaid planning, or something else.
To learn more about your alternatives to joint ownership of assets, we invite you to contact us to schedule a free initial consultation.