By Kitty J. Lin
A property owner has many different ways to avoid probate. One of the most common ways that homeowners hold title of their property is by joint tenancy. This method is sometimes referred to as “joint tenancy with the right of survivorship.” Joint tenancy is where two or more owners jointly own a piece of property. When one owner dies the surviving owners receive the deceased owner’s share of the property without having to go to through probate. This sounds like a great tool for homeowners looking to avoid probate but there are several drawbacks to owning a property through joint tenancy.
One of the major drawbacks is that joint tenancy is only an effective tool for the first couple owners (depending on how many joint owners are on title). The property will still have to go through probate when the last surviving owner passes. For example, if there are three joint tenants owning one piece of property and the first owner passes, the property automatically passes to the remaining two surviving owners without having to go through probate. When the second owner passes, the property goes to the last surviving owner without having to go through probate. The last surviving owner will now have to find another method (such as having a revocable living trust) to protect his property from probate since there are no other joint owners remaining.
Another drawback is if all the joint owners in the property simultaneously pass away at the same time (this obviously does not happen too frequently but it is still a concern) the property will pass under the terms of each joint owners will. This can happen if the joint owners go on vacation together and the plane crashes or if there is an automobile accident or any other freak accidents that may happen. Life is unpredictable. If one joint owner has a will and the other does not, then the share belonging to the joint owner that does not have a will goes through intestate succession according to state law. The property would most likely have to go through probate in such an event. It can become quite complicated and not at all what the joint owners had in mind when they created the joint tenancy. This is not good estate planning for the long term.
If you own the property yourself and you add another person on title as a joint tenant just to avoid probate there are several concerns with this transfer. One of the concerns is that you are technically giving away a 50% interest (or more if you add more joint tenants) in your property. You lose control over your property to someone else. If you trust the person you are adding as a joint tenant and they are honorable people then you have nothing to worry about. But if the person you are adding is a gambling addict or have lots of creditors chasing them that person may do things to the property that you do not approve of but you lost 50% interest by placing them on title with you. Another concern is that you are subject to the gift tax by giving away half your property (there is currently a $5.25 million exclusion so you may not have to worry).
Another drawback is that one of the joint owners may become incapacitated either by mental illness, physical disabilities or other incapacities. If such an event were to occur, it can raise some concerns as to what the owners may do with the property. One way to avoid this is by having each of the joint owners sign a durable power of attorney assigning an agent to manage their financial affairs in the event of any incapacities of any of the owners.
The bottom line is if you do not have many assets and own a piece of property with another person and you have a durable power of attorney to provide for one of the owner’s incapacity in the event such occurrence rises, then joint tenancy may be a cheap alternative to avoid probate. However, if this is not the case, it is still a better option to contact a trust attorney to created a trust to protect your interests. The easiest way to avoid probate and pass a property to anther is putting the property into an inter vivos revocable living trust.
