Many times people try to avoid probate by holding their assets in Joint Tenancy. Joint Tenancy is the method of putting someone’s name (ex. a child) on property or accounts.
Any good estate planner should advise you of the possible risks.
Joint tenancy will avoid probate as long as one of the joint tenants survives. If you are married taking title to your assets as joint tenants with rights of survivorship, all assets are automatically transferred upon the death of one spouse to the surviving spouse and there is no probate.
For numerous reasons joint tenancy with rights of survivorship should only be used between married individuals. The pitfalls of ownership as joint tenants with someone other than your spouse include:
- Your property is exposed to the creditors of your joint owner.
- You may create gift tax consequences when the asset is transferred.
- As a joint owner, you give up some control over your property. (Both joint owners must approve every transaction regarding the property).
- If one joint tenant becomes incapacitated and unable to act, the other must go to court and become appointed as “conservator” before being able to do anything with the jointly owned assets.
- From an income tax standpoint, the death of one joint tenant permits a stepped-up cost basis on only one-half of the jointly owned property.
- Probate is required when the surviving joint tenant dies.