Avoid the Pitfalls of Joint Property Ownership.

Many people approach estate planning with a simple solution.  They place the name of a trusted adult child on their bank accounts and sometimes even on the title to their homes.  They reason that if they become disabled this child will be able to pay their bills and otherwise conduct their personal business.  In the event of their death this child can be relied on to distribute cash and other assets to the other siblings fairly.  This approach to estate planning often leads to unpleasant unintended consequences and is usually not a good idea.

Types of joint property ownership

First, one needs to consider the various types of joint ownership (also called concurrent estate or co-tenancy).  There are three categories of joint ownership:

  • joint tenants with full rights of survivorship,
  • tenants in common,
  • tenants by the entireties. 

If one wishes to use joint ownership to pass property following death one must create a joint tenancy with rights of survivorship (JTROS or JTWROS).  Upon the death of one of the joint tenants the property automatically becomes the property of the surviving joint owner.  When two or more people own property as tenants in common the property does not automatically go to the surviving joint tenants on death.  Rather, the decedent's interest in the property goes to his or her estate.

Example: Sam and Susan own a bank account as joint tenants with full rights of survivorship.  Upon Sam's death the entire account becomes the property of Susan. There is a different result if Sam and Susan own the bank account as tenants in common.  Upon Sam's death his interest in the account would go to his estate and be distributed either by the terms of his Living Trust or as determined by the Probate Court.

Tenancy by the entirety is the property interest created when a husband and wife jointly owned property.  It is largely treated the same as joint tenants with full rights of survivorship.  The interest of the deceased spouse in any property automatically passes to the surviving spouse.

The biggest potential problem with using joint tenancy as a wealth transfer technique is the reliability of the joint tenant. Once you have passed away the money and property will be theirs. They may have a moral obligation to fairly distribute the assets to siblings. But absent a will or other enforceable directive there is no legal obligation to make these distributions. Your bequest could also be subject to the joint tenant’s creditors.

Passing your estate through a Living Trust is the most reliable way to insure that your wishes are honored.


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