Do I Need to Plan If I Have Joint Tenancy Property?

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We’ve all got that friend or relative who thinks they know it all. You know the type—they recommended Enron as a hot stock pick. Now they’re convinced that holding everything in joint tenancy is all the estate planning you’ll ever need.

Joint tenancy is a way to own property, like real estate or brokerage accounts, where each owner (or “joint tenant”) has an equal share. When one joint tenant dies, their share automatically goes to the remaining owner(s). It sounds simple, right? Let’s say Betty, a widow, adds her son Ben as a joint tenant on her house. When Betty passes, Ben automatically becomes the sole owner of the property.

But is joint tenancy really as simple as it seems? Not so fast. While property does pass without probate, there are a few pitfalls most people don’t think about.

property

First, Ben’s creditors could come after the property if he runs into financial trouble. Imagine Betty adding Ben as a joint tenant for “convenience,” only for Ben to get sued in a drunk driving case. Suddenly, half of Betty’s house could be up for grabs to pay off Ben’s debts.

Then there’s the issue of gift taxes. If Betty transfers real estate into joint tenancy with Ben, that could be considered a gift. Gifts over a certain threshold require filing a gift tax return. And if Ben is later taken off the title, that’s another taxable gift in reverse. If Betty is applying for Medicaid to cover long-term care, this back-and-forth gifting could complicate her eligibility. What started as a “simple” approach could become a complex mess.

Divorce is another risk. If Ben gets divorced, his share of the joint tenancy property might become part of the divorce settlement. Betty probably didn’t plan for her house to be split up in her son’s divorce proceedings, but it could happen.

A smarter option? Betty could set up a revocable trust. By placing the property in the trust, she can still avoid probate and control when and how Ben inherits. Even better, Ben’s creditors won’t be able to touch the trust assets, protecting the family’s property from outside claims.

An estate planning attorney can help you avoid the unintended consequences of joint tenancy. Instead of relying on the advice of your “know it all” friend, consult with a professional who can offer a personalized solution to protect your assets and meet your goals.

From the desk of Attorney Brandon McGee

Brandon McGee
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