We often see clients who have been advised by someone else that holding bank accounts or real property as “Joint Tenants” (also called “Joint Tenancy”) is a cheap way to avoid probate costs. It’s true that if one of the joint tenants passes away, the other joint tenant(s) will own the account or the property without having to go through probate court proceedings. However, joint tenancy can expose you to a lot of risks that you might not be aware of.
A woman I know of added her son on to the title to her home as a joint tenant because she didn’t want him to have to go through probate when she passes away. Everything seemed fine until her daughter-in-law divorced her son and the divorce court gave the daughter-in-law the son’s share of her house! Now she had a co-owner on her home who was her ex-daughter-in-law.
With real estate, you lose some control by having a joint owner on the property. Now the woman couldn’t sell her home without the daughter-in-law’s agreement. When she wanted to downsize, the daughter-in-law refused to cooperate with the sale because she wanted to hold out for a larger sale price in the future.
On the other hand, with a joint tenant on a bank account, you can lose some control because either joint owner has complete access to the assets. If you add a child on as joint owner, they have the right to take out every penny from the account, draining it to zero, and you can’t do anything about it. The biggest risk might not be that your child as joint tenant cleans out your bank account—the biggest risk might be that your child gets sued or might owe money for her debts and her creditor can take all of your money from the account because your child is named as a joint owner. We have actually seen situations where this has happened against the will of the parent and the debtor child.
Another concern is that if you or a joint owner has enough assets that either of you might be subject to an estate tax when you pass away, the entire value of the joint account is considered part of your estate and your joint owner’s estate even though you each only own half! Also, when you add a joint owner onto your account, you’re making a gift which might be a taxable gift if half the account is more than the annual exclusion from gift tax (currently $14,000 per person in 2016), and you would be required to file a gift tax return.
Finally, if you add a friend or family member as a joint owner to your account, the entire account is considered your asset for nursing home Medicaid qualification—even though you only own half the account. This will not protect your assets from nursing home costs.
So, to avoid the risk of loss of control, gift & estate taxes, and to protect your assets from creditors and nursing home costs, there are much better strategies to use that will still help you to avoid probate. Be sure to see a qualified estate planning, elder law, and/or Medicaid attorney who can help you to devise the best customized plan for your needs.
OKURA & ASSOCIATES, 2016
Honolulu Office (808) 593-8885
Hilo Office (808) 935-3344
Ethan R. Okura received his Doctor of Jurisprudence Degree from Columbia University in 2002. He specializes in Estate Planning to protect assets from nursing home costs, probate, estate taxes, and creditors.
This column is for general information only. The facts of your case may change the advice given. Do not rely on the information in this column without consulting an estate planning specialist.