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What's Wrong with Using Joint Tenancy for Estate Planning?

By February 26, 2013Estate Planning

I met with a widow, who I will call “Mary”, who came to see me because she wanted to add her daughter, Jill, as a joint tenant on her home.  When I asked Mary why she wanted to do this, Mary stated she did not want her home to go through probate.  Mary’s primary concern was ensuring her daughter receive the home when she dies.  While adding a child to a home as a joint tenant with rights of survivorship is a way to avoid probate, I have strong concerns with such a strategy.

It is important to understand that when someone is added as a joint tenant to a property, they are now also a full owner of the property.  If Mary utilized this strategy, she would not be able to sell her home without her  daughter's consent.  Mary’s daughter Jill would actually have the right to encumber the property as well as to sell her own interest in the property without Mary’s consent.  Additionally, any creditors of Jill's can go after the home as a way to satisfy outstanding debts.  A final concern I have with such a strategy is that it is a completed gift and Mary cannot take it back without Jill's consent.  Thus, Mary could not add Jill to the home and then a few years later remove her name, unless Jill first gives permission.

There are better alternatives for Mary, all of which carry out her primary concern of avoiding probate, but also allow her to maintain exclusive ownership of the property. One of my suggestions to Mary was the use of a beneficiary deed.  A beneficiary deed allows the owner of real property to designate who receives the real property at the owner’s death.  To effectuate the transfer, a death certificate must be filed with the appropriate county recorder.  A beneficiary deed avoids probate which was Mary’s primary concern.  A beneficiary deed also provides Mary with flexibility – she is still the sole owner of her home so she can sell it, mortgage it, etc if she chooses.  Mary also has the ability to revoke the beneficiary deed if she decides someone other than her child should receive the property and is no longer putting the property at risk in case Jill may have difficulties with creditors or law suits.

My other suggestion to Mary was the use of a revocable living trust.  Mary’s rights to her home stay the same even once it is titled in a revocable living trust.  She has the right to sell it or mortgage it.  Because the home is titled in a trust when Mary dies, the home is not subject to probate.  This accomplishes Mary’s goal of probate avoidance.  The use of a trust also gives Mary the ability to provide Jill with additional protections.  Mary could leave the house to Jill in a beneficiary trust which has asset protection.  Thus, if Jill has creditors, they could not take the house as a way to settle the outstanding debts.

Mary ultimately decided to create a trust for herself.  She appreciated the ability to provide her child with additional protections and to avoid the downfalls that could have come if she had utilized joint tenancy as a planning option.

 

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This blog should be used for informational purposes only.  It does not create an attorney-client relationship with any reader and should not be construed as legal advice.  If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.

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