Joint tenancy is often referred to as a “poor man’s will” which is a simple and inexpensive way to avoid probate but it is not appropriate in many cases. Except between spouses, joint ownership is usually a bad idea. Joint tenancy property passes to the surviving joint tenant, regardless of your Last Will.
Despite your best intentions, there’s a trap in holding joint tenancy ownership with an adult child when trying to avoid probate or for “convenience” that you may not have considered. While you may achieve the goal of delaying probate at the first death, your hard-earned assets may be jeopardized by your child’s debts, lawsuits or divorce, and are fraught with other problems.
Joint tenancy ownership occurs when two or more names are placed on bank accounts, stocks, bonds, or real property deeds. By operation of law, when one of the joint tenants dies, the survivor automatically owns the entire asset. Having your joint tenant automatically receive your asset at your death may not be what you intend or may not even be in your heir’s best interest.
Even though there is no probate when the first joint tenants dies, the deceased owner has lost control over the asset and the property may still be subject to the probate process upon the second death. Consider a husband and wife who owns their home in joint tenancy. When the husband dies, the property passes to the wife. When the wife dies, the property will still be subject to probate, an expensive and time-consuming process.
The problem is compounded if they have a blended family with children from different spouses. In this case, the husband’s children would be completely disinherited because they are not heirs of the surviving spouse.
Even in marriages with common children, if the wife adds an adult child to her accounts or real property deeds for “convenience” in managing her day-to-day financial affairs, or thinks it is the best way to give them their inheritance now, it is not the best strategy for a number of reasons.
Upon mom’s death, the entire account or property will pass to the remaining account holder even though mom would have naturally wanted it to be divided equally among all of her children. Absent a better plan, if she would like to leave something to her grandchildren of the non-joint account holder, those grandchildren would lose out on their intended bequest as well. The surviving co-owner can do with it what they please, with no legal obligation to the others.
Exposure to Creditors
In the event of an automobile accident (for example) and mounting medical bills that your joint tenant cannot or will not pay, your hard-earned assets will be subject to your joint tenant’s potential debts, lawsuits, liens, judgements or bankruptcy. In cases where government entities are involved, such as the IRS or Medi-Cal, joint tenant assets are likewise subject to seizure, sale or collection.
Division in Divorce
If your child should get divorced, that child will be required to disclose all assets to their spouse, including any interest in joint accounts. Under the wrong circumstances, the divorce court could regard those joint accounts as marital property, which is divided in the property settlement.
Decision to Re-convey Property
If you decide that you want to sell, refinance or otherwise re-convey your property, your joint tenant must agree and be willing to sign the deed and appropriate paperwork. If your joint tenant refuses, or no longer has capacity to sign, you may have to seek a court-order to protect your own assets.
Disagreement with Joint Tenant
If you have a falling out with your joint tenant, your co-owner will be able to take all of the money out of the bank accounts without your knowledge.
Joint tenancy ownership occurs when two or more names are placed on bank accounts, stocks, bonds, or real property deeds.