Joint Ownership And Its Risks

Joint tenancy is a type of co-ownership under which if one co-owner dies, the surviving co-owner becomes the owner of the property at the moment of death. The property does not pass under the decedent’s will and does not pass through probate. But joint property can create many problems. If you take my advice, you’ll “stay away from expensive joints.

It is not a good idea to make your bank account joint so that your child, or other person, can take care of your bills if you are incapacitated. The right way to do this is to name the child or other person as your agent under a power of attorney.

Joint tenancy is different than tenancy in common. Joint tenancy has the survivorship feature where the surviving joint tenant becomes the sole owner. In a co-tenancy (owned by tenants in common) each owner’s share passes separately to his or her heirs or beneficiaries. There is no right of survivorship.

Many different kinds of property can be held as joint tenants or as tenants in common. The exact wording of the deed, account agreement or other document that creates the tenancy is very important. It is important to note that the name that shows on statements from financial institutions is not dispositive of the ownership. What governs is the account agreement with the institution when the account is set up.

Giving up control. By making someone a joint owner with you, you give them control of your asset. If you add another person as joint owner of your home, you cannot sell or mortgage the home unless that person agrees. The joint owner would be entitled to part of the proceeds.

Creditors. If a creditor has a claim against your co-owner, whether it’s your house, or a bank account, the creditor may be able to get part of your house or account, or potentially all of it, if it is held as joint tenants.

Falling out. If you and your co-owner have a fight, the co-owner may be able to take all of the money out of a joint account.

Inheritance. If you have several children and put only one child’s name on an account held jointly with you, that account belongs to that child and he or she is under no obligation to divide it with his or her siblings. In addition, the funds belong to the surviving child and cannot be reached for funeral expenses, estate administration expense or taxes. Joint tenancies don’t have the flexibility of a will or trust, where you can provide alternative beneficiaries on death and specify distribution ages of the beneficiaries.

Tax planning. A carefully crafted estate plan designed to eliminate or reduce estate and inheritance taxes can be destroyed by moving assets into joint ownership.

Marriage and Divorce. Individual property may become marital property if it is transferred into joint names with a spouse.

Tune in for the conclusion next week.

Have a great week!