Category: Timely Opportunities
Estate planners generally tout the virtues of owning property jointly — and with good reason. Joint ownership offers several advantages for surviving family members. But this shouldn’t be viewed as a panacea for every estate planning concern. You must also be aware of all the implications.
2 types of joint ownership
As the name implies, joint ownership requires interests in property by more than one party. The type of joint ownership depends on the wording of the title to the property.
From a legal standpoint, there are two main options for married couples:
Property may also be owned as a “tenancy in common.” With this form of ownership, each party has a separate transferable right to the property. Generally, this would apply to co-owners who aren’t married to each other, though in certain situations married couples may opt to be tenants in common.
The main estate planning attraction of joint ownership is that the property avoids probate. Probate is the process, based on prevailing state law, whereby a deceased person’s assets are legally transferred to the beneficiaries. Depending on the state, it may be time-consuming or costly — or both — as well as being intrusive. Jointly owned property, however, simply passes to the surviving owner.
Joint ownership is a convenient and inexpensive way to establish ownership rights. But the long-standing legal concept has its drawbacks, too. Some disadvantages of joint ownership relate to potential liability for federal gift and estate tax. Comparable rules may also apply on the state level.
For example, if parties other than a married couple create joint ownership, it generally triggers a taxable gift, unless each one contributed property to obtain a share of the title. However, for a property interest in securities or a financial account, there’s no taxable gift until the other person makes a withdrawal.
Lessons to be learned
Joint ownership is a valuable estate planning tool, especially because it avoids probate. But it’s not the solution for all problems. Nor should this technique be considered a replacement for a will. We can help coordinate joint ownership with other aspects of your estate plan.
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