By Sarah Stewart Legal Group
I have had several people tell me they do not need an Estate Plan because they own everything jointly with their children, or they want to. Though it is true owning property in joint tenancy with right of survivorship means the other owner receives everything on the death of the joint owner, there are some pitfalls to joint tenancy that you must be aware of before making that change:
(1) Loss of Control.
The original owner loses control of the asset when the asset is listed with a joint owner. The new owner has the same ownership as the original owner and big decisions can no longer be made without the approval of both owners. For instance, if Mom has Son on the Deed to her home as a joint owner and she wants to sell her home, Son has to agree and sign off on the sell.
The new owner will have the same access to the property as the original owner. Take a bank account, for example. If the account is owned jointly, the new owner can write checks off of the account to pay his or her own bills, without the consent of the original owner.
Once property is owned jointly, the new owner has equal right and access to it. That means their creditors do as well. Son has a large amount of debt he owes. If Son is named as a joint owner on Mom’s home, Son’s creditors can file a lien on Mom’s home for Son’s debt.
(4) Tax Issues.
Joint property is taxed differently than an inheritance. When a new owner is named as a joint owner, there can be tax implications. Let’s say Son agreed to the sell of Mom’s home in our earlier example. Since Son does not live in the home, his portion of the sell is taxed to him very differently than Mom’s and he may be liable for a large tax payment.
Though joint tenancy works very well in some situations, it must be used carefully. If you are considering joint ownership, please be sure to do your research first so that you do not encounter unintended consequences.