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Joint Tenancy and its Perils

Joint Tenancy

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Joint Tenancy
The Risks of Joint Tenancy

Joint Tenancy – it is quick, convenient and tempting. It used to be called, “The Poor Mans Will.” And it is fraught with potential disaster. Consequently, aside from marital funds, you should be very cautious of ever using it to title assets.

It is effortless to add someone’s name to a title. This is done by quitclaim deed or by adding a name to your bank or another financial account. Joint tenancy as a form of the legal title has “right of survivorship.” ROS means when one joint tenant dies, the surviving title holders assume ownership. However, in every form of joint tenancy, there is a risk, and it is a risk you should not take.

Real Estate in Joint Tenancy

Real estate not held in the name of a trust, corporation or LLC, is either titled in a single name or multiple names, with each titleholder sharing equal ownership. Conversely, Joint Tenancy, as stated above, has the right of survivorship. As a result, it is a common way to hold title to marital real estate. However, married couples often believe that joint tenancy avoids probate. It doesn’t. Joint Tenancy only delays probate, until the death of the surviving joint tenant.

Probate

Probate exists primarily because no one has the right to sign another person’s name. For example, if you become incapacitated, or when you die, property held solely in your name must go through the long (1-2 years) and expensive Probate process. As a result, Probate must happen even if you have a Will and property in your name because a judge still must appoint an Executor in Probate Court. The Executor will administer your Will and oversee the distribution of your estate.

To avoid Probate, you should hold title to all your property in a Living Trust, instead of in your name.

Other Common Forms of Title

Another form of tenancy for real estate is Tenants in Common, which does not have the right of survivorship. It goes directly to probate for the transfer of ownership to the deceased title holders heirs. Finally, a common tenancy is Tenants by Entirety. TBE is essential for all police officers and high-risk professionals, who are married. It provides complete asset protection for the principal place of residence, against creditor claims and judgments from lawsuits, for as long as the spouse resides in the home.

In addition to Probate, both Tenants in Common and Joint Tenancy hold the significant risk of exposing the property to the creditor and legal claims of every person on the title. Therefore, creditor risks are a compelling reason why you should never add your children to your title. Finally, adding a name to your title triggers a capital gains tax issue.

Financial Accounts in Joint Tenancy

Often seniors add their children’s names to a bank or other financial accounts. Here are three reasons you should never do it:

  1. Risk of Intentional or Unintentional Loss: There is no legal protection to prevent a person named on an account from taking any or all funds of that account at any time. Strange things happen to people around money. You may undoubtedly love and trust your kids, but unforeseen circumstances, inlaws, or outlaws, in this case, may influence your child.
  2. Unexpected Disability: If your child acquires a disability by accident or illness, their eligibility for Medicaid or SSI could cause your financial accounts to be spent down.
  3. Unintentional Disinheritance: The surviving joint account holder has total control, and even if you trust your child to do the right thing and share the account with siblings, that child might die or acquire a disability or end up in divorce proceedings before it happens.

With the exception of Tenancy by Entirety – for a limited period of time in certain circumstances – all your property and financial accounts should be held in a Living Trust. Importantly, a Living Trust will protect against the above risks and provide you and your family with peace of mind.

Living Trusts

A Revocable Living Trust is a written, legal document that allows you to privately and efficiently pass your assets (real property, bank accounts, stock, saving certificates, personal property, etc.) to your family, friends or charities after your death – outside of Probate Court. (Remember, all Wills are subject to Probate. ) Your life insurance policies and deferred compensation accounts can name your Living Trust as beneficiary, subject to essential tax considerations.

Contact us today for further information or visit Tuohy Law Offices now.

Tom Tuohy

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Tom Tuohy, attorney, Living Trusts, Personal Injury, Small Business
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Chicago, Illinois, 60607

This blog entry has been created for information and planning purposes. It is not intended to be, nor should it be substituted for, legal advice, which turns on specific facts, as well as laws in specific jurisdictions. No reader of this blog should act or refrain from acting on the basis of any information included in, or accessible through, this blog without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the reader’s state, country or other appropriate licensing jurisdiction.

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