Joint ownership as a poor man’s testament

Joint ownership is probably the least understood area of ​​estate planning today. Joint tenancy with rights of survivorship means that each joint owner has a full and undivided interest in the property. Neither party can sell the property without the consent of the other. Upon the death of one of the parties, all property passes to the survivor automatically, avoiding probate. Popularly known as “the poor man’s will,” joint tenancy causes more litigation than any other estate-related problem. Stocks, bonds, bank accounts, and real estate are the types of property most often held jointly.

There are three main advantages to owning property in a joint tenancy agreement: bonding, protection from creditors, and avoidance of probate.

Bonding: Joint ownership can help build trust between partners. It provides tangible proof that the relationship is a partnership and that each person’s contribution is valued equally. Some commentators refer to this advantage as “promoting inner tranquility.”

Creditor Protection: In the event a partner has a bond or debt problem, any assets held in the names of both partners as joint owners are protected from foreclosure or repossession. If both spouses owe the debt, or if the debt arises from common possession, the protection will not take effect.

Probate Avoidance: Probate is the court-supervised process of establishing the validity of a will and administering the decedent’s estate. Probate fees generally amount to approximately six (6) percent of the estate.

While joint ownership has only a few advantages, there are at least seven key disadvantages: inflexibility, unwanted beneficiaries, inexperienced partner, estate tax problems, income tax problems, gift tax problems, and family disputes. .

Inflexibility: Neither party can assign common property through a will. A will only controls property in the name of an individual and does not include joint property. Furthermore, neither party may sell, rent, or use the property in question without the permission of the other party.

Unintended Recipients: Joint ownership can pass to someone you don’t want to receive it. Indeed, a stranger can inherit his property. If you and your partner own a home jointly, if you die and your partner finds someone else you want to leave the property to, you can do so without restriction, even if the property was originally yours and is being donated to a person or organization against their wishes.

Inexperienced or incompetent partner: The surviving partner may not have experience handling money or may be physically or mentally disabled. Who will take over the assets then?

Estate tax issues: Since all joint assets go to the surviving partner, they will be subject to estate tax when the surviving partner dies. In unmarried and same-sex relationships, there is no unified estate tax credit. The family of the surviving partner would be required to pay the government an amount equal to fifty-five (55) percent of all assets above the estate tax threshold.

Income tax problems: Joint tenancy will create an additional problem if the estate owns assets that have gone up in value. If the property passes through a will or trust at death, the cost basis is “increased” to the value at death so that the beneficiary does not have to pay any capital gains tax. However, a surviving joint owner would be required to pay income taxes on any increase in value between the time of purchase and the death of the first joint owner.

Gift tax issues: If you own property in your own name and you voluntarily give half of that property to your partner, you will be required to pay gift tax on the value of half of the interest in the property you gave them to the. Gift tax is currently forty-five (45) percent of any gift over $13,000.

Family disputes: Frequently, a person who places an asset in joint ownership later decides that they want it back. Without the consent of the other partner, there is no legal way to transfer the asset back. If the romantic relationship ends, the property will retain its joint tenancy status.

It should be noted that a comprehensive estate plan centered around a revocable living trust will achieve the goals of avoiding probate and simplifying asset distribution without all the negatives associated with joint tenancy, as described above. A revocable living trust is the ideal vehicle to protect your loved ones in the event of death or disability.

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