Is Joint Ownership A Good Way to Avoid Probate?
Many people have established joint accounts and placed the names of their beneficiaries on deeds as a way to distribute their property.
While this approach avoids probate and is very simple to put into effect, it has some serious disadvantages which should be considered.
- Joint tenancy avoids probate on the death of the first joint tenant, but the property is still subject to probate at the death of the surviving joint tenant.
- Joint tenancy may prove to be inflexible and put a strain on family relationships. For example, if you and your spouse transfer real estate to yourselves and your children to create joint tenancy with them, you must obtain consent from your children and from their spouses before selling your property.
- Joint tenancy may result in accidental disinheritance. If in the example above, one child predeceased you, your spouse and the other child, the children of the predeceased child would be cut off from receiving any part of the joint tenancy property. The surviving child and his family would receive all of the property.
- Creation of joint tenancy may be treated as a taxable gift for federal gift tax purposes.
- Gifting property to beneficiaries during your lifetime through creation of joint tenancy with you or through an outright gift has potentially adverse income tax consequences. Your children may be liable for capital gains tax which could have been avoided if the property had passed to them at your death.
- Property you transfer to create joint tenancy with your children may be subject to the claims of their creditors.