- No creditor protection is available when property passes by joint tenancy. Creditors come in many shapes and sizes these days. Jury verdicts in even the most common accidents easily exceed insurance limits. Aging survivors are more susceptible to lapses of concentration while driving or otherwise. Why unnecessarily expose all of the survivor’s assets to creditors when a trust can provide creditor protection to your spouse or your descendants? This is valuable protection that can not be purchased at any price if you miss this planning opportunity.
- No estate tax protection for post-death appreciation is available if joint tenancy is used. Although the asset will pass to your spouse estate tax free; upon the death of the survivor, the entire estate is exposed to estate taxes and the estate tax exemption available to the first decedent is lost. If your estate, including life insurance is likely to exceed $1,500,000, then you have unnecessarily benefitted the government at the expense of your descendants. However, if a “credit shelter” trust plan is utilized, the decedent’s estate, up to $1,500,000, will escape taxation no matter how much it appreciates before the death of the surviving spouse. If a spouse outlives the decedent by nine years, the statistical average, an estate worth $1,350,000 at the first death, can be expected to grow to than $2,000,000 to $2,700,000. With proper planning, the estate tax can be legally reduced to nothing, but if joint tenancy is used, the estate taxes will exceed $400,000.00 to $600,000. Quite an expense for the convenience of joint tenancy!
- Reduced protection from accumulated capital gains. Individually owned or community property receives a “step up” basis to fair value at the date of death and your heirs can sell the property and pay no capital gains. If property is held as joint tenants, the joint tenant avoids probate, but receives the favorable “step up” basis treatment on only one-half of the property.
- Lack of control. A joint tenant has no control over what happens to the property after death. A surviving joint tenant can sell or transfer the property, or can pass it to the survivor’s choice of heirs, including subsequent spouses. Joint tenancy deprives you from assuring that your property stays in your bloodline. Without any further planning, property owned by a surviving joint tenant will pass automatically to the heirs of the survivor. If the survivor’s heirs are not the same as the decedent’s this could lead to an unintended result.
- Guarantees public probate proceedings. Although there will be no probate administration when the first joint tenant dies, unless the survivor creates a new plan, upon the death of the survivor, a public probate proceeding is necessary to complete the transfer of the property.
- May subject you to expensive and potentially devastating results. Joint tenancy property is fair game for creditors of your joint tenant. Although you may have an opportunity to prove the property was placed into joint tenancy for convenience and that the property really does not belong to the debtor, you are exposed to litigation and the expense and uncertainty that are the natural results.
At Bregman & Burt, we use a comprehensive counseling approach to estate planning to be sure you have a unique estate plan specifically tailored to solving the tax and non-tax issues confronting your family. Many ill advised joint tenancy plans can be avoided in modest estates through a series of beneficiary deeds, POD or TOD designations and the use of freely available but little known signing authority techniques. In larger estates, trust plans may be the better choice.
Mark Bregman is an experienced planner of estates, let him show you how to avoid common pitfalls, save money, and create a comprehensive estate plan that will reflect your hopes, dreams, desires, and aspirations for you and your loved ones while taking advantage of advanced planning techniques when necessary to maximize estate tax savings.