Joint Tenancy Can Be a Mixed Blessing
Imagine that you and your brother each contribute 50 cents to buy a lottery ticket. Luck is with you; you scratch the ticket to find you’ve won $100,000.
With the check in hand, you rush to the bank to open a savings account. As the bank teller begins opening your new account, he asks: “Would you like the account in joint tenancy or tenancy in common?”
What he is asking is really an estate-planning question. If you die, do you want your brother to inherit the money in the account without having to go through probate? Or if you have a family, perhaps you would prefer your children to inherit your $50,000 share. If you put the account in joint tenancy, they won’t get a dime from that account.
Avoiding Probate
The primary difference between these two methods of owning property is that joint tenancy has an automatic “right of survivorship,” which means that your joint tenant will become the legal owner of the property as soon as you die, without having to go to probate court.
Real estate and personal property can be held in joint tenancy. So whether you’re talking about your car, your house or the new savings account filled with lottery winnings, you can co-own the property in joint tenancy, as long as each of the owners has an equal share. If you own property in different proportions, you cannot use the joint-tenancy device.
Creation of a joint tenancy is not automatic. It can only be created in writing. For instance, if you want your house to be owned in this way, the deed must use the magic legal words “in joint tenancy” or “as joint tenants.” Without words like that, the law will presume that the house is owned as a tenancy in common, which means that each person’s share will be part of his estate when he dies and will be passed by his will. (If you die without a will (intestate), the law provides which of your family members will be in line to inherit your estate.)
Remember, if property is in joint tenancy, upon the death of one of the joint tenants, the property is automatically transferred to the other owners, no matter what your will says about the property. (It’s not quite automatic; there is some paper work involved, but you don’t have to go to court.)
For example, if the imaginary brothers who won the lottery opened their savings account as joint tenants, and one died, then the surviving brother owns the entire savings account, even if the dead brother had a will that said his nephew should inherit his share of the savings account.
Before placing all of your property in joint tenancy just to avoid probate, you should consider the risks associated with this kind of property ownership. The most significant problem is loss of control.
Once you name someone else as a joint tenant on your property, that person is treated as an owner; he can sell his share of the property, use it as collateral for loans or keep you from selling the entire property. So if you don’t completely trust the other person involved, joint tenancy is not the way to go.
If the other joint tenant sells or transfers his share, which he can do without your knowledge or permission, the new buyer’s ownership interest is as a tenant in common, thus destroying the right of survivorship.
If you own a savings account in joint tenancy, the co-owner can withdraw all the money, and then there’ll be nothing to share.
While both joint tenants are living, the property can be used to pay off the debts of one of them. Although the creditor can only seek payment from one party’s share, he can force a foreclosure sale of the property to get the money owed to him from that share.
However, with some limited exceptions, upon the death of a joint tenant, the survivor gets the property free and clear of the dead joint tenant’s debts.
Finally, when you change ownership, there may be gift-tax consequences if the property is worth more than $10,000. If you want your car to be automatically transferred to your teen-age granddaughter upon your death, without probate, you can name her as a joint tenant on the car registration, but if the car is worth more than $10,000, a gift tax will be due at the time you add her name.
There can be other complications, as well. As a new joint-tenant owner of the automobile, the insurance will have to cover your granddaughter too.
If you are thinking of using joint tenancy as a way to avoid probate and the high fees for probate lawyers and executors, you should consult an attorney or tax adviser to consider your specific situation. They may suggest other alternatives, such as the living trust.
Example Forms
The book, “Plan Your Estate: Wills, Probate Avoidance, Trusts & Taxes,” by lawyer Denis Clifford, has an excellent chapter on joint tenancy, including sample forms to transfer ownership and the paper work needed to complete the “automatic” transfer after death. The book is published by Nolo Press, 950 Parker St., Berkeley, Calif. 95710.
The Tel Law Service, sponsored by the Riverside and San Bernardino bar associations, has a tape entitled “What is Joint Tenancy?” Call (714) 824-2300 and ask to listen to tape No. 36. Although there is no fee for the tape service, you will have to pay the cost of the phone call, including any long distance charges.
