When you’re the co-owner of property, one of the simplest ways to ensure that the property avoids probate at your death is to hold title as Joint Tenants With Rights of Survivorship. When one owner passes away, property held in this way automatically passes to the surviving owner or owners. The transfer is not subject to probate, and it’s not controlled by your Will or other estate planning documents. While this is an easy way to transfer individual assets, like real estate or bank accounts, it is not without its drawbacks. Here are a few:
- Your co-owner becomes the sole beneficiary of property held as Joint Tenants. If you want your house or bank account to be divided among several children, but you only name one as your co-owner, then your remaining children will have no claim to the property after you pass away. Ownership will transfer only to those named as co-owners, regardless of what your Will says.
- Adding a non-spouse could be a taxable gift. When you add a child, grandchild, or anyone other than your spouse as a Joint Tenant, and that person does not contribute financially toward the purchase of the property or the funding of the bank account, there can be gift tax implications. You’re allowed to give up to $13,000 per year to an individual recipient without reporting the gift to the IRS or paying gift taxes. Gifts of more than $13,000 necessitate the filing of a gift tax return, and eat into your Lifetime Gift Tax Exemption. So, if your new co-owner’s interest in the property is more than $13,000, you’ve made a reportable gift that might be taxable, too.
- Signing a Joint Tenancy deed is permanent. When you add a co-owner to a deed for real estate, and that co-owner is a Joint Tenant, it’s very difficult to undo the transaction unless your co-owner agrees. Plus, once you add a co-owner, you need his or her permission to sell or refinance the property.
These are just a few of the unintended consequences that can accompany ownership as Joint Tenants. Your estate planning attorney can inform you of all the pros and cons, and can help you decide if this form of property ownership best suits your estate planning needs.