Typically, joint ownership of property is beneficial to an estate plan. In fact, there are several advantages to joint ownership for surviving family members. There are exceptions, however, and joint ownership may not be the ideal solution for all estate plans.
Two types of joint ownership for spouses
As the name implies, joint ownership requires interests in property by more than one party. The type of joint ownership depends on the wording of the title to the property.
From a legal standpoint, there may be two main options for married couples:
- Joint tenants with rights of survivorship (JTWROS). This is the most common form and often is used for a personal residence or other real estate. With JTWROS, one spouse’s share of the property can be sold without the other spouse’s consent. The property is subject to the reach of creditors of all owners.
- Tenancy by the entirety (TBE). In this case, one spouse’s share of the property in some states can’t be sold without the other spouse joining in. TBE offers more protection from creditors in noncommunity property states if only one spouse is liable for the debt. Currently, a TBE is available in just over half U.S. states.
Property may also be owned as a “tenancy in common.” With this form of ownership, each party has a separate transferable right to the property. It is more common for this to apply to co-owners who aren’t married to each other, though in certain situations married couples may opt to be tenants in common.
Joint ownership plusses and minuses
Avoiding probate is the main estate planning attraction of joint ownership. Probate is the process, based on prevailing state law, whereby a deceased person’s assets are legally transferred to the beneficiaries.
Depending on the state, going through the probate process can be time-consuming, costly, and even intrusive. Jointly owned property, however, simply passes to the surviving owner. Joint ownership is a convenient and inexpensive way to establish ownership rights. But the long-standing legal concept has its drawbacks, too, like the potential liability for federal gift and estate tax. Comparable rules may also apply on the state level.
For starters, if parties other than a married couple create joint ownership, it generally triggers a taxable gift, unless each one contributed property to obtain a share of the title. However, for a property interest in securities or financial account, there’s no taxable gift until the other person withdraws.
Lessons to be learned
While joint ownership can be a valuable estate planning tool, especially because it avoids probate, it should not be considered a replacement for a will. Newburg CPAs can help you coordinate joint ownership with other elements of your estate plan. Contact us to learn more about how we help clients estate plan.