joint
ownership and estate planning
When most people think about estate planning, they
think about writing a will, in which they bequeath
all their worldly goods to their surviving relatives
and friends. However, some kinds of property, such
as jointly owned property, do not pass through a
will. Instead, when one joint owner dies, the property
passes directly to the other joint owner. This transfer
is immediate, and no probate process is necessary.
There are many different types of property that you
can own jointly, including bank accounts, family
cars, and homes. Particularly in old age, people
hold bank accounts or stocks in joint ownership with
their spouse, with one or more children, or with
friends.
Should you put property in joint ownership as part
of your estate plan? The answer depends on your circumstances.
Most lawyers urge caution. You may want to avoid
joint ownership in the following circumstances:
1. When you don’t want to lose control. Giving
someone co-ownership gives him or her co-control.
For example, if you make your son a co-owner of your
house, you cannot sell or mortgage the house unless
he agrees. If you do sell the house, your son may
be entitled to part of the proceeds.
2. When you cannot be sure of your co-owner. An untrustworthy
co-owner could withdraw all the money from a jointly
held bank account, or creditors of the co-owner could
put a lien on the co-owned property. Moreover, if
the co-owner were to become legally incapacitated,
you would not be able to sell or transfer titled
property, such as a home, without going through a
cumbersome court proceeding.
3. When you are in a shaky marriage. In most states,
separate property becomes marital property once it
is transferred into joint names, which means it can
be divided between spouses in the event of divorce.
4. When your intentions may change. When you transfer
property into joint tenancy, you make a gift of one-half
of the property to the new joint tenant. If you later
change your mind, you can’t undo the gift.
5. When you are using co-ownership to substitute
for a will. Joint tenancy is seldom a complete substitute
for a will. The reason is that a deceased person
almost always has some property that was not jointly
owned, so probate may still be necessary. Joint tenancy
also does not help if all the joint tenants die at
the same time. Each joint owner still needs a will.
6. When co-ownership might cause confusion
after your death. For example, it might be unclear whether
a bank account held in joint ownership was created
to help a child manage bill payments, or whether
the money in the account was intended as a gift.
This type of confusion could cause strife among heirs.
Even if none of the above red flags seem to apply
to you, you still should exercise caution in using
joint accounts. They may result in unexpected tax
consequences for either or both owners and may also
affect your eligibility for public benefits such
as Medicaid. Talk to your lawyer about the legal
implications of joint property ownership.
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