Eliminating the need for probate is a goal for many clients. Joint tenancy, a form of co-ownership, is one tool that can help achieve this goal.
When one co-owner dies, his interest in the real property automatically passes to the surviving co-owner, thereby, eliminating the need for probate. Joint tenancy can, however, have its perils and must not be entered into lightly.
Control Issues: By providing someone with co-ownership, you give them control of your asset. For example, if you add another person as co-owner of your home, you cannot sell or mortgage the home unless that person agrees.
Creditor Issues: If creditors seek out your co-owner for outstanding debts owed, the creditors may be able to obtain part of your home or bank account held in joint tenancy.
Relationship Issues: If you and your co-owner experience a falling out, the co-owner may be able to take all of the money out of the bank account.
Substitute for Will Issues: Parents of several children may place one child’s name on an account and assume she will divide assets equally among all siblings. Unfortunately, this method provides no stipulations over control of the money. The surviving co-owner can do with it what she pleases, with no legal obligation.
Tax Issues: Careful planning to eliminate or reduce estate taxes can be completely thwarted by a joint tenancy that passes property outright to a surviving joint owner.
Long-term Care Issues: Thoughtful planning to reduce long-term care financing can also be thwarted by a joint tenancy that passes property outright to a surviving joint owner.
Marriage Issues: Individual property may become marital property once it is transferred into a joint tenancy.