There is an expression about a little bit of information being a dangerous thing, and this often enters into the realm of estate planning. Sometimes you will hear about a so-called “simple solution” that sounds good on the surface, but an incomplete picture is painted.
Joint tenancy would fall into this category, and we will take a look at the details in this post.
If you own property, you can establish a joint tenancy with another person, or multiple individuals. For the purpose of this explanation, we will stick to a joint tenancy that involves two participants.
Let’s say that Jan wants to leave her home to her son James after she passes away. She could draw up a will and name James as the inheritor of the property.
However, if she goes this route, the executor that she names in the will would admit the document to probate. The court would supervise during the administration process, and there would be procedural hurdles to cross before the transfer would take place.
Probate will typically take close to a year to run its course if there are no complications, and in addition to the time consumption, relatively significant costs accumulate.
Jan could facilitate this transfer outside of probate if she establishes a joint tenancy with her son. After her passing, James would become the sole owner of the home, and the probate court would not be involved.
It should be noted that joint tenancy can apply to the ownership of other types of property, like bank and brokerage accounts.
Joint Tenancy Drawbacks
When you understand the facts, you will see that joint tenancy is risky business.
Getting back to our example, as soon as Jan executes the paperwork, her son would own half of the home. As a result, if James runs afoul of the IRS, or if he is sued for any reason, his portion of the property would be within the reach of the litigant.
To expand on this example, let’s say that her son volunteers to handle Jane’s finances, and she adds him to her bank account as a joint tenant. She wants the money in the account to be part of her estate after her passing so it can be distributed among multiple heirs.
Her son would not be legally compelled to follow these instructions. He could have different ideas, and this type of thing can cause serious disputes within families.
Better Options Exist
There is no reason to roll the dice with joint tenancy when there are safer, more efficient, and more effective ways to facilitate property transfers outside of probate.
If you utilize a revocable living trust as the centerpiece of your estate plan, you would act as the trustee while you are living, you would have total access to the assets. You would name a trustee to succeed you after your passing, and your heirs would be the beneficiaries.
When the time comes, the trustee would follow the instructions that you recorded in the trust agreement. Assets would be distributed to the beneficiaries, and the probate court would not be involved. The avoidance of probate is one major benefit, but there are others.
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