PITFALLS OF JOINT OWNERSHIP

     You may have heard of the terms, “joint tenants with right of survivorship,” “tenants in common,” and “tenants by the entireties. All of these are forms of what is known as “joint tenancy”. Joint tenancy means that more than one person owns the property. Many people own property together with someone else, such as a spouse or child, often believing that upon the death of one, the other will take immediate ownership of the property without the inevitable costly intervention of attorneys and the courts, otherwise known as probate. It is generally not the best method of passing your property to your heirs and often causes unplanned or serious impacts upon the surviving owner. Following are examples of some pitfalls of owning assets in joint tenancy and how effective estate planning, including a Living Trust, can overcome those pitfalls and avoid the intervention of the courts.

     Mary, and her two children, Ken and Debra each owned an equal interest in the family home. Ken lived in the house with his mother, Mary. One evening when driving home from the supermarket, Mary and Debra were killed in an automobile accident. Mary and Debra’s interests in the home were each required to be probated to pass their share to their heirs. Mary’s interest passed to Ken and Debra. Since Debra is deceased, her share passed to her 2 children. As a result, Ken and Debra’s 2 children own the house together. Debra’s children want to sell the house. Ken does not want to sell and cannot afford to buy the others’ interest. Since all could not agree to sell, the house could not be sold. Against Ken’s wishes, Debra’s children decided to exercise their right to move into the house already occupied by Ken.

     Don, his wife, Dana, and their son, Sam, each owned 1/3 of the family home on a 10 acre parcel of land. One night, Sam was involved in an automobile accident which injured 3 of his passengers. Sam was at fault and was sued by the passengers who obtained a court judgment against him. Because Sam could not afford to pay the judgment, it was levied against the home and land. In order to pay the judgment, Don, Dana and Sam were forced to sell their home and land.

     In Florida, the primary residence owned jointly by a husband and wife is given special treatment. The home automatically passes to the survivor on the death of one spouse without the need for probate. The home is also entitled to certain protection from creditor claims and property tax reduction. However, upon the death of the second spouse, probate will be required to pass the home to the couple’s heirs. If a third person is added to the deed of the home, both creditor protection and tax reduction will be lost and the creditors of that person can make claims against the home.

     Before adding someone as a joint owner to your property, consider the above examples of pitfalls of joint tenancy. These pitfalls may be avoided with proper titling and estate planning techniques, including the creation of a Living Trust.

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