Minneapolis Estate Planning Lawyer Cautions Clients on Joint Ownership of Property
One of the most common questions I am asked is whether someone should add another person to the deed to their home (or other property). Below I discuss some of the concerns I have with joint ownership of property.
“Joint Tenancy With Right of Survivorship” means that each person has equal access to the property. When one owner dies, that person’s share immediately passes to the other owner(s) in equal shares, without going through probate. We’ve all been told that Joint Tenancy is a simple and inexpensive way to avoid probate, and this is sometimes true. But the tax and legal problems of Joint Tenancy ownership can be mind-boggling. The dangers of Joint Tenancy include the following:
Danger #1: Only Delays Probate. When either joint tenant dies, the survivor -- usually a spouse or a child -- immediately becomes the owner of the entire property. But when the survivor dies, the property still must go through probate. Joint Tenancy doesn’t avoid probate; it simply delays it.
Danger #2: Two Probates When Joint Tenants Die Together. If both of the joint tenants die at the same time, such as in a car accident, there will be two probate administrations, one for the share of each joint tenant in the Joint Tenancy property as well as any other property they each may own.
Danger #3: Unintentional Disinheriting. When blended families are involved, with children from previous marriages, here’s what could happen: the husband dies and the wife becomes the owner of the property. When the wife dies, the property goes to her children, leaving nothing for the husband’s children.
Danger #4: Gift Taxes. When you place a non-spouse on your property as a joint tenant, you make a gift of property every time that joint tenant takes property out of the account. For example, when a mother retitles her $80,000 home in Joint Tenancy with her son, she makes a gift to her son every time he makes withdrawals. This may not be the most efficient use of her $14,000 annual exclusion. The main point is that the gift is unintentional and not well planned. Worse, Minnesota now has a state gift tax that requires the person giving a gift of more than $14,000 in a year to file a state gift tax return.
Danger #5: Right to Sell or Encumber. Joint Tenancy makes it more difficult to sell or mortgage property because it requires the agreement of both parties, which may not be easy to get.
Danger #6: Financial Problems. If either owner of Joint Tenancy property fails to pay income taxes, the IRS can place a tax lien on the property. If either owner files for bankruptcy, the trustee can sell the property even though the other joint tenant is not otherwise involved in the bankruptcy.
Danger #7: Court Judgments. If either joint tenant has a judgment entered against them, such as from a car accident or business dealings, the holder of the judgment can execute the judgment against the Joint Tenancy property.
Danger #8: Incapacity. If either joint owner becomes physically or mentally incapacitated and can no longer sign his name, the Court must give its approval before any jointly owned property can be sold or refinanced -- even if the co-owner is the spouse.