The Perils of Joint Ownership

One of the most common ways to own property is in joint tenancy with the right of survivorship (JTWROS). When one joint owner dies, his or her interest passes automatically to the surviving joint owner(s), not to the decedent’s heirs. With respect to real estate, one would record the decedent’s certificate of death with the register of deeds to pass title. JTWROS is commonly used on bank accounts, CDs, vehicles, etc.

JTWROS does not avoid probate. It postpones it until the death of the surviving joint owner. For example, let’s say Mike and Traci own real estate and have a checking account at Acme Bank, titled in their names as JTWROS. If Mike dies first, the account goes to Traci. Unless she does some subsequent estate planning, upon her death the assets might have to go through the probate to be distributed according to Traci’s Last Will and Testament. So at Mike’s death, there is no probate, but there could be at Traci’s.

JTWROS can be an easy and beneficial way to pass assets at death. However, you can wind up with disastrous and unintended consequences. Adding a joint owner is relatively easy. However, change your mind and removing a joint owner may be difficult. For example, if mom adds her daughter as a joint owner on mom’s certificate of deposit and later changes her mind, mom cannot remove the daughters’ name without the daughters’ permission. Having the daughters’ name is on the account gives her total access to mom’s money. So if the daughter has judgment creditors, they may try to gain attach the account even though the daughter never contributed a dollar.

I had a situation with where the parents conveyed their house back to themselves and their five children as joint tenants. The parents wanted to take title in the house back to them in order replace it with a transfer on death deed. There have been a falling out between the parents in one of the children who refused to convey back to his parents his interest in the house. We got it worked out but it was a mess.

Another problem is when mom’s last will and testament states that it leaves everything equally to her three children but two of the children are joint owners on mom’s checking account. Only the two on the count become owners of the checking account at mom’s death and the third child gets nothing. The will only controls the distribution of assets that are in mom’s estate and does not control who gets jointly held property.

Another problem is when people do not die in the order anticipated (the eldest doesn’t necessarily go first) and no other estate planning was done. Let’s say mom and daughter are joint owners on mom’s checking account. The daughter dies first, then the checking account will have to go through probate at mom’s death, which may not represent her wishes. Also, if a joint owner dies prematurely, that person’s children may not inherit anything. For example, mom and two daughters are joint owners of mom’s house and oldest daughter has three children and mom would have wanted the oldest daughter’s share to go to her children. However, since the house is JTWROS after mom death, the youngest daughter gets everything and the oldest daughter’s children get nothing.

Joint ownership can be a simple way to convey ownership and property upon death of one of the joint owners but you better be careful to make sure it accomplishes your estate planning goals.

Thanks, Mike

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