Is joint ownership a good substitute for a will?

The short answer is probably not.joint ownership

 

Joint ownership is sometimes called the poor person’s will or the lazy will, although it is the most common form of estate planning. Its chief advantage is that it avoids probate. Yet, it brings with it a host of problems. Keep in mind that there are different kinds of joint ownership and all have their problems.

Here are the main ones:

1. The joint owners can be responsible for each other’s debt.

Creditors for your co-owners may attach your jointly owned property to satisfy their debts. Bankruptcy, a legal judgment against a co-owner, or a tax lien are most likely to cause problems. For example, suppose you add your daughter as a joint-owner of your home. If she defaults on a personal debt, your home could be sold to satisfy the debt. You will likely receive half the proceeds of the sale of the house, but you are out of a home with only half the funds you need to replace it. In some states tenancy by the entirety will protect each person from the debts of the other.

2. Your survivor is not bound by your wishes in passing on the joint property after your death.

Your survivor can do anything he wants to with the jointly-owned property he inherits. If you want to control how property is distributed to your children or charities, you need a will.

3. You may need approval from joint owners to sell or refinance the jointly-owned property, such as your home.

When you share ownership through a tenancy by the entirety, every joint owner you have must agree to major decisions. You may have been the sole decisionmaker of your business that you built from nothing. Yet, if you have made your children joint owners, major financial decisions will require their approval. Lines of credit increases and other routine matters can require a lot of discussion. These transactions can be further complicated if one of your co-owners becomes incapacitated or untrustworthy.

4. You co-owner may be able to make key decisions without your approval.

On the other hand, if you use a tenancy with right of survivorship, your co-owners can use or sell any part of the jointly owned property.

5. It can increase taxes.

Uh oh. You were hoping to save taxes through joint-ownership. To the contrary, you could incur additional taxes and even paperwork.

The gift tax

You can incur gift taxes and extra paperwork if you purchase a home with your money and put it in joint tenancy with a domestic partner. IRS rules consider that to be a gift whose value exceeds the gift limit.

Capital gains tax

IRS calculates capital gains on the sale of a home based on the increase in value from the date of purchase. If you sell a home which is jointly owned, all owners must pay taxes based on the total increase in value, regardless of when they became owners. On the other hand, capital gains accrue for heirs only based on the difference between the value when they inherited the home and the value at sale.

If joint ownership isn’t the answer, what is?

There are a number of options to ensure that your property reaches the people or causes you want with the least waste of time, effort and costs. Wills, trusts, and family-owned entities will serve you much better. Check with one of our estate planning attorneys today. A 30-minute consultation is free.

Norman Short, partner, 24 years experience in estate planning business and tax law

Robert Garrison, 38 years experience, including estate planning, consumer issues, and family law

Sylvia Seybold is often the choice of younger families. She combines estate planning experience with family law

probate

Probate

What is probate?

When someone dies, probate is the legal process for establishing the validity of their will or determining who should receive the possessions of someone who died without a will. Washington State has one of the shortest probate processes in the country. It is usually concluded within six months.

Yet, even with a will probate can be complex. This is especially true for administrators and executors for whom this is the first time. If you are in that position, let one of our probate attorneys guide you through the process to assure that you are implementing your friend or loved one´s wishes and preserve the estate.

3 stages of probate

Probate has three stages.  Opening, administration, and closing.

  1. You open the probate by asking the court to prove the will (recognize it) and appoint the executor. The executor then notifies all parties including heirs and beneficiaries and the banks, mortgage companies, insurance companies and other entities that hold or are concerned with the estate assets.
  2. Then comes the work of administration. Tasks include paying debts and managing and, in some cases, liquidating assets.
  3. You close the estate when you distribute the assets to the beneficiaries. The final task is filing a report with the court.

If there is no will, the court will appoint an executor based on a list established by law. The executor will then distribute the assets based on the law for estates without a will.

Most people who are assigned the job of executor have never handled probate before. Even if you are completely new to probate law or to financial matters, the law will hold you accountable for mistakes and loss due to those mistakes, if you are the administrator or executor. Thus it pays, to spend some time consulting a probate attorney during the process.

We can guide you

John Groseclose, personal injury, family law attorney

John Groseclose

Norman Short, tax and business law attorney

Norman Short

Bring all your questions to John Groseclose and Norman Short. They will explain the process in detail, assist you with the forms and be available to answer your questions. Either Norm or John will expertly take on any portion of the process you assign them. Set up an appointment today.