When people think about estate planning, the last will they executed 20 years ago undoubtedly comes to mind. Most never consider that the way their accounts are owned will have specific, possibly undesirable after-death consequences. In fact, coordinating how you own your assets with your estate planning goals is vital to the success of your plan, and yet this step is often ignored during the planning process.
The types of asset ownership include: sole ownership, joint ownership, and contractual ownership with a beneficiary designation.
Each form of ownership has a different effect on what happens to the asset upon the death of an owner. Joint ownership has the potential to be the most problematic form of ownership because people typically use it as a substitute for more well-thought-out planning.
The three types of joint ownership are:
• Joint Tenants With Right Of Survivorship (JTROS),
• Tenants In Common, and
• Tenancy By The Entirety.
An asset held JTROS results in the title of the asset passing by operation of law to the surviving owner/s upon the death of one. The “last man standing” ends up with full ownership of the asset and, upon his or her death, the asset will pass according to his or her estate plan. This is also true in tenancy by the entirety; however, tenancy by the entirety can only be formed between spouses.
Joint ownership is often used for the convenience of giving each joint owner access to a particular asset or account. Others implement JTROS or tenancy by the entirety as part of their estate plans, because it allows the jointly owned asset to pass to the surviving owner without being subject to a court process known as “probate.” However, it also passes outside of any estate planning instrument, such as a will or a trust.
In bypassing an established estate plan, which reflects a person’s intentions, the ultimate disposition of the asset may be unintended and contradictory to the deceased owner’s objectives. For instance, if an elderly parent adds one of his/her adult children to his/her account as a joint owner, then that one child will inherit the entire account upon the death of the parent. Usually, the parent adds the child for convenience, or to help them pay bills—not with the intention of only that child inheriting it. If the parent owner had more than one child, or intended for all of his or her assets to be divided among multiple individuals, then the account passing to the one child co-owner contradicts those goals. In such a case, something as seemingly insignificant as ownership of the account will lead to an unfair result and the possibility of fighting among family members.
Another issue with joint ownership is that a jointly owned asset is subject to the liabilities of each owner. This means that if one of the owners is sued, it could result in the entire account being frozen or lost to a creditor. Likewise, upon the death of an owner, the entire asset becomes an asset of the survivor, with no protection. Thus, if the survivor was to need long-term care or get divorced, the asset could be spent on a nursing home or split in the divorce.
The last form of joint ownership, tenants in common, comes with a different set of issues. Upon the death of a tenant-in-common owner, that owner’s interest passes through his or her estate and is subject to probate—a court process which is disliked mostly for being time-consuming, expensive, and for its public nature. The deceased owner’s interest will pass to his or her heirs, who will then own the asset jointly, as tenants in common, with the original surviving owner. Therefore, the ultimate disposition could potentially result in several owners who may or may not get along.
The above examples are just a few ways that joint ownership can lead to unanticipated and often unfavorable results. With alternatives ranging from simple solutions such as a power of attorney, to more comprehensive solutions such as a living trust, there is no reason to allow jointly held assets to get in the way of your estate planning goals. Whatever the motivation is for owning an asset jointly, the same goal can often be achieved through a well-drafted estate plan in conjunction with appropriately titled assets—and will likely have a better result.
Title is sometimes the difference between an effective estate plan and a failing one. If you haven’t been counseled by an attorney on how your assets should be held, your estate plan might not work. To ensure that your goals are met, please have an experienced estate planning attorney review your plan and how your assets are titled.