By Brent Ripley
Many people are tempted to avoid probate by adding children or others as joint tenants to their properties or bank accounts. Don’t do it! You may think it’s a convenient way to pass your property free of probate, but the risk isn’t worth it.
When you own in joint tenancy, you don’t own a portion of the property; you own, together with your joint tenant, an “equal right to the undivided whole.” What does that mean? It means that each of you have all the rights to all the property. Here are a few of the problems:
First, what happens if your joint tenant is sued? How much of your property is at risk? Your joint tenant’s portion of the property? Only if you mean all of the property. All of it is exposed, not just half. If you’ve added a child as a joint tenant and your child runs into financial or legal problems, your property could be used to satisfy their debts.
What about your spouse? Lawsuits are only one of many potential problems. For example, what happens to your property if your joint tenant spouse becomes incapacitated (legally incompetent) due to accident or illness? Can you sell your house? Not without getting appointed as guardian or attorney in fact for your spouse. There are no separate rights in the property until the other tenant has passed away.
Also, the surviving joint tenant may be unable to distribute property as you wished without running into gift tax problems. The law says that if you name your daughter as a joint tenant on your large bank account or CD, then when you die it’s her account. If your instructions were for her to divide the account among her siblings, she could run into tax problems. For example, she can’t give more than $12,000 per year to her siblings without paying a gift tax or using her own unified credit.
If your goal is to avoid probate, there are other options that don’t have the same level of risk as joint tenancy. It’s worth your while to look into those other options. I will address a few of them in coming posts.
Brent Ripley is an estate planning attorney with Jamestown Law Group and partner of Jamestown Wealth Management, a Utah Registered Investment Adviser.