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Is Joint Property the Single Solution
Wanting to pass on personal property quickly and efficiently to a loved one is a goal common to many. Perhaps you wish to guarantee that your grandchild will inherit the vacation home. Or perhaps you want your brokerage account to pass to your son or daughter, avoiding the probate process completely. In both cases, a common choice is the use of joint ownership with the right of survivorship (JTWROS). At first glance, JTWROS property may seem like a good way to accomplish your goals, but before you use this common solution, consider some potential risks.
One clear and popular benefit of using joint tenancy with rights of survivorship is that upon one owner’s death, his or her share is automatically transferred to the surviving owner(s) free of the cost and delay of probate. What may be less popular if understood, however, is that JTWROS property gives each owner an equal “undivided interest” in the entire property. Each owner is entitled to full use of the property and to his or her share of any income it produces. When you create a JTWROS, you may be giving up full control. For example, if you desire to sell or refinance your property after naming a new joint owner, the new joint owner(s) must give their approval. Even more concerning, if newly named joint owners were to find themselves in financial trouble, they or their creditors may be able to force a sale of the property and receive a proportionate share of the property’s value. Therefore, caution should always be taken when titling a bank or brokerage account in JTWROS. Trying to name an alternate beneficiary for joint property in your will also may prove frustrating. Remember, the property will pass to the joint owner outside the probate process and the directions of the will. If you decide you want someone else to inherit the property, you may need the current co-owner’s approval. A possible solution would be to, instead of placing property in JTWROS, consider a revocable living trust. You are able to name the person(s) you want as beneficiary, and that decision is revocable (changeable) at any time. A Transfer On Death (TOD) agreement may also address the desire for efficient transfer to beneficiaries and retain the same beneficial qualities of joint property. A TOD agreement affords the owner the ability to designate who brokerage account assets will pass to, by-passes probate upon death, and does not expose account assets to the fore-mentioned problems. A common misconception with JTWROS property is that it will lower estate taxes. This is not true. The value of the property is included in the taxable estate in proportion to ownership and exposed to tax. The first-to-die’s estate will be taxed on the share of the property that he or she actually owns and, for this reason, it is important to keep records of the funds each person contributes. The haphazard titling of property in JTWROS could also expose you to a gift tax consequence, depending on the value of the property. There are a few exceptions such as bank accounts, securities held in street name and savings bonds. These transfers are taxable gifts only when the gift becomes “complete,” occurring when the newly named co-owner exhibits ownership over the property.
Of course, this brief article is no substitute for a careful consideration of all of the advantages and disadvantages of this matter in light of your unique personal circumstances. Before implementing joint property or any significant financial planning strategy, contact and consult with your financial planner. NOTE:
ALL information contained in this site is for illustration purposes only, and by NO means should be considered individual tax or legal advice under any circumstances whatsoever!
Lynn R. Siewert AIMC
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