Joint tenancy is a form of legal ownership where the property passes automatically at the death of one of the owners to the remaining joint tenants. Typically, there are two joint tenants, though there could be three or more joint tenants. While this form of ownership may be convenient, especially for couples, it can be disastrous when it is used with others.
Let’s look at a quick example. Betty and Bob were married and had two children, Jack and Mary. Betty and Bob had a home and farm in joint tenancy. Bob died and the home and farm passed to Betty smoothly. After Bob’s death, Betty decided to put the home and farm in joint tenancy with Jack and Mary, since the joint tenancy worked so well at Bob’s death and she wants the home and farm to stay in the family at her death. So, she transfers the home and farm property into joint tenancy with Jack and Mary.
But Betty soon encounters problems. Jack and Mary slowly begin to feel entitled to more of a say in the operation of the farm, since they’re now equal owners. It starts out with Jack and Mary taking more of an interest in the farm, which Betty thinks is great. Soon Mary begins to question which crops are best to plant. Jack begins to question the wisdom of Betty’s home remodeling plans. Everything is just more complicated.
The real problems begin when Jack is driving home one night and has an accident. A family is seriously injured. They get a judgment against Jack for way more than his insurance will cover. They look at Jack’s other assets to recover the balance of the judgment. Jack’s other assets include his interest in the home and farm he owns with Betty and Mary in joint tenancy.
Betty has herself in a real problem now. She tried to shortcut an estate plan and it backfired on her. She may lose some of her farm and she has to deal with interference from her children.
There’s a better way. If Betty had placed the home and farm in a revocable trust, it would not have been subject to Jack’s creditors. In fact, Betty could have the trust designed so that after her death Jack’s share of the property would be held in trust to continue to protect it from his creditors.
While Betty is alive, the home and farm in a revocable trust can continue to be managed by her as trustee, without any interference from Jack and Mary. If Betty becomes incapacitated, the person she wants can step in and run things until she recovers.
A revocable trust can be the central part of a solid basic estate plan.
Stephen C. Hartnett, J.D., LL.M.
Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128
www.aaepa.com
Steve Hartnett
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