Written by: Michele Procino-Wells, Esq.
Joint ownership of assets with a person’s children or other individuals can lead to disastrous results if not used properly. “Joint tenancy” is the legal term for joint ownership and it applies to any asset that is “titled,” including bank and investment accounts, real estate, cars or boats. When a joint tenancy is created, two (or more) individuals own the asset together and, upon the death of one joint owner, the remaining owners take over that person’s interest. Many mistakenly believe that placing a home or account in joint names with their children is a fast and easy estate planning tool that avoids the hassle of probate. This may be true in limited circumstances, however joint tenancy often creates more harm than good. The following illustrates some of the most common pitfalls associated with joint ownership:
Joint Ownership Trumps Your Estate Plan – That’s right! Any property owned in joint tenancy passes automatically to the surviving owners, outside of probate, regardless of what your Will says. For example, imagine a widow with three children, two of whom live out of the area. The widow decides to place her checking account in joint names with her local daughter for convenience sake, but intends to leave her entire estate to her three children equally. When she dies, the other two children are excluded from inheriting the account as the daughter becomes the outright owner as surviving joint owner. Chances are, the widow did not intend this result; however, the daughter is under no legal obligation to share ownership of the account with her siblings or use it for her mom’s final expenses.
Unexpected Exposure to Creditors, Judgments and Exes-in-Law – A joint owner can encumber the property through mortgages, liens or judgments. As well, the property is considered an asset of each owner and is therefore potentially subject to attachment by creditors. If you decide to place your home in joint tenancy with your children, you run the risk of losing your property if one of your children is on the losing end of a civil judgment. What’s more, if one of your children goes through a divorce, his or her spouse could claim an interest in the property during the division of assets. Each of these scenarios by itself could result in the requirement to sell the property to satisfy the judgment or claim, leaving you with only your interest remaining – which will be insufficient to repurchase a comparable home.
Loss of Medicaid Eligibility – If you are considering your long-term care needs, you may wish to someday apply for Medicaid benefits to cover the costs of a nursing home or assisted living facility. Under the current Medicaid eligibility rules, Medicaid could consider the placing of your home in joint ownership with another a gift and would impose a period of ineligibility for benefits based on the value of the home. You could then be required to either sell your interest (and spend that money to pay for your long-term care) or endure a potentially lengthy penalty period. Either way, a joint tenancy is generally not helpful for Medicaid planning purposes and should be avoided.
While we do not suggest that joint tenancy is to be avoided in all circumstances (e.g., it is often appropriate for married couples and can be helpful to have a jointly-owned modest checking account for bill paying purposes), this arrangement usually invites an increased risk of trouble with your estate plan. Better estate planning tools exist such as Powers of Attorney and Trusts which can accomplish the same goals intended by joint tenancy. A comprehensive plan eliminates the unforeseen dangers joint ownership of assets may cause for you and your family.