What should you say when a client wants to leave everything in joint tenancy with their kids? To the layperson, this can seem like the perfect quick fix. Mom adds her children to all her assets in joint tenancy, the kids get rights of survivorship, probate is circumvented, and everyone is happy – right?
Joint tenancy only keeps assets out of probate as long as there’s a surviving owner left to inherit the property. At the death of the last surviving owner, where does an asset usually end up? In probate.
Joint tenancy can also open the door to more troubling consequences, like:
- Financial Worries. Joint tenants have rights to the entire asset in question. When a parent adds a child to a financial account, the child has access to the entire account balance. Money trouble for the child can turn into a disappearing bank balance for the parent.
- Legal Woes. Joint tenants share more than just property rights – they can also share legal worries. If the child gets divorced, is named in a lawsuit, or otherwise has his assets jeopardized in a court action, property owned in joint tenancy becomes vulnerable. Even if a parent’s interest in the property is not subject to the child’s legal claims, sorting out who owns what – and how claims should be paid – can be a lengthy and expensive process.
- Loss of Control. What happens if mom adds her son to her property deed, then later wants to sell or refinance? She has to get her son’s signature. If he won’t cooperate, she can’t do what she wants with her own property.
- Uneven Distribution. Many clients don’t understand the interplay – or more accurately, lack thereof — between joint tenancy and estate planning documents like wills and trusts. Mom might add one child’s name to all the assets, but leave a will distributing everything equally among her three children. The problem is, she never realized assets owned in joint tenancy aren’t controlled by her will. Unless the child who got all mom’s assets as a co-owner is particularly benevolent, the remaining siblings are disinherited. Not only does this undermine mom’s intentions, it can lead to family discord and litigation.
Joint tenancy can also create big problems for a client who needs to qualify for Medicaid. I’ll talk more about this drawback in my next post.
Stephen C. Hartnett, J.D., LL.M. (Tax)
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (800) 846-1555
- Puerto Ricans are Unique, as Is Estate Planning for Them - September 29, 2020
- Planning Is Important - September 22, 2020
- Staying Current is Especially Important in the Pandemic - September 15, 2020