Joint tenancies have long been used to transfer assets to succeeding generations. In a joint tenancy an asset (usually real property) is placed in the name of two or more people. During lifetime, these “joint tenants” hold an undivided interest in the property. If the joint tenancy is properly made, the surviving joint tenant becomes the absolute owner upon the death of the other joint tenant, without the need for a probate or a will. In fact, many clients are surprised to find out that joint tenant property goes right around a will, even if the property is mentioned in the will.
Joint tenancy between a husband and wife is common. But it is also common for parents to place children on a deed so that they will automatically inherit the property without probate. Placing children and, at times even a spouse, on your property for estate planning purposes can have many unexpected results, including:
- Disqualification for Medicaid benefits.
- Unintentional disinheriting of one’s own family in a second marriage situation.
- Loss of control over assets (eg. Need for approval of other joint tenants to sell property).
- Increased capital gains tax costs through the loss of the step up in basis at death.
- Subject property to creditors of joint tenants and spouses of joint tenants in divorces.
- Cause potential gift tax consequences for the surviving joint tenant if they are to share the property with others.
Though many people have received property through joint tenancy from their parents, there are also numerous other individuals that have created unpleasant side affects through their creation. As a general rule, joint tenancies should not be used as an estate planning device except for husbands and wives of first marriages with no children that are not the children of both of them.