When you go to open a bank account or take title to real estate, people often suggest joint tenancy as a simple solution which avoids probate.
Joint tenancy is the co-ownership of property during the lives of two or more joint tenants. Upon the death of one of the joint tenants, the remaining joint tenant(s) immediately succeed to the ownership of the property. If there is only one surviving joint tenant, he or she becomes the sole owner, thus avoiding the probate process.
Tenancy-in-common is also the co-ownership of property. However, unlike joint tenancy, upon the death of a one of the tenants in common, the other tenants in common do not succeed to the deceased tenants interest.
Simply adding someone to title as a joint tenant in realty is a gift that could trigger a gift tax. More importantly, the creditors of the joint tenants can go after the property. Lets look at an example for illustration
Mom adds son as a joint tenant on their vacation home. She trusts her son completely. However, her son has an accident which causes injuries. The injured party is able to collect against the sons half of the home. Mom who was home watching TV when the accident occurred has lost half her homes value.
The addition of a joint tenant may have other unintended consequences. When Mom added son to the title, she made a gift which may make her ineligible for Medicaid to pay for her nursing home care for a substantial period of time.
A parent will often add one of his or her children as joint tenant to bank accounts in order to give the child access to the account in the event of the parents disability. By adding the child as joint tenant there is danger that a child will make unauthorized withdrawals from the account. Furthermore, title to the bank account will vest with the joint tenant child after the death of the parent, which may be contrary to how the parent wishes his or her estate to be divided at death.
Rather than face these and other consequences, it is often best to avoid joint tenancy and form a revocable trust to avoid probate. A revocable trust is a simple vehicle which holds title to assets for you. It designates how the assets are to be distributed at death and provides emergency access to funds in the event of disability, but it protects the assets from creditors and prevents unauthorized withdrawals during lifetime. At your death, the revocable trust continues on. Thus, there is no need for a probate court to be involved to re-title the assets which are owned by the revocable trust.
A revocable trust is a simple, straight-forward method of avoiding probate and the risks of joint ownership. Before titling anything in joint tenancy, consult a qualified estate planning attorney who knows the risks of joint tenancy and the advantages of revocable trusts.