Is Joint Tenancy a good idea? Many people will use joint tenancy as a way of planning their estate without a will or trust. With Joint Tenancy, assets transfer automatically to the surviving joint tenant upon the death of a co-owner, and the asset avoids probate. But there are pitfalls to be aware of when using Joint Tenancy.

Common assets held in Joint Tenancy are real estate, bank accounts and stocks or bonds accounts. For some individuals under the right circumstances, joint tenancy estate planning can be a simple and inexpensive way transfer assets upon death. However, for others the results can be disastrous.

You No Longer Have Control Of Your Asset

The most evident result of joint tenancy is the loss of control to the original owner(s) of an asset. In order to gain from the survivor benefit of joint tenancy, the original owner must pass title of the asset to the other person. That person must take legal title to the asset along with the original owner. In the case of real property, an owner would deed her entire interest in the property to herself and the person she intends to receive the property upon her death as joint tenants. However, once this is done, the new joint tenant is an equal owner in the property, and holds the same power over the asset. The new joint tenant can transfer his interest without the consent of the original owner. The worst-case scenario, the new joint tenant might not give the required consent the original owner desires when the need to transfer the property arises.

For example, a grandmother owns her single family home. Being in ill health, she transfers her home to her son and her grandson as joint tenants. Later, the father finds a buyer for the home and expects to sell the property for a significant profit. However, the grandson refuses to sign the deed. Without this consent, the father cannot sell the house.

Using a revocable living trust, the original owner can always change the trust at any time in the future. This is the same with a Will as well. Another benefit is by using these planning devices is that you do not have to disclose your intentions regarding potential beneficiaries. Your estate planning affairs remain private.

What Happens If The New Joint Tenant Dies First?

When planning for the distribution of your estate, no one can predict the future. Using Joint Tenancy as an estate planning tool could have unintended and devastating results.

Let us say a father has two homes. His personal residence he wishes to leave to his children; however, his second home he wishes to leave to his nephew and his children. Father deeds his second home over to himself and his nephew as joint tenants. Unfortunately, a tragic accident occurs, and the nephew is killed in an auto accident. The father, filled with grief, dies a month later. The father had neither a trust nor a will because he thought he had taken care of his estate through the use of joint tenancy. Instead, the nephews children will get nothing because the fathers property will pass through probate and determined by Californias laws of intestate succession. Because the father was survived by his own children, they will get both houses the nephews family gets nothing.

Another consideration is that there is no way to provide for a persons living heirs that you wish to give property. An example would be a mother with three daughters. All of the daughters have children. The mother wishes to leave her estate equally to her daughters and their children. Mother deeds her property in joint tenancy with her daughters. Just prior to mothers death, one of the daughters passes of an unexpected illness. Upon the death of mother, the two surviving daughters each own the property equally. The children of the deceased daughter receive nothing from her grandmother.

By using a revocable living trust, or at least a will, people can plan for contingencies that they never would have dreamed of when contemplating estate plans. This will allow the passage of assets to the loved ones that you intended, not as determined by the State of California, or some other unintended result.

What About the Tax Consequences?

Finally, there can be adverse estate and gift tax consequences to joint tenancy estate planning. In the event that a non-spouse co-owner transfers his or her interest in the jointly owned property prior to the death of the original owner, the co-owner will most likely incur high capital gains taxes as the "basis" of the property will be the that of original owner's basis in the property. Also, the co-owner is subject to gift tax.

Also, in the event that spouses are joint tenants, the surviving spouse takes the asset free of estate taxes pursuant to the spousal estate tax exemption. Initially, this sounds like a good idea. However, for those couples with estates greater than the Unified Credit, the estate would incur estate taxes that could otherwise be avoided with careful estate planning.

Unified Credit

Presently, the Unified Credit permits each person, during his or her lifetime, to make non-spousal transfers of assets in any amounts up to $1,000,000 free from any estate or gift tax in 2003. The asset exemption under the Unified Credit for estate tax purposes will increase to $1,500,000 in 2004 and 2005, to $2,000,000 in 2006, 2007, and 2008, and $3,500,000 in 2009. For individuals dying after 2009, the estate tax is repealed. However, in 2011, the $1,000,000 exemption will be reinstated unless the U.S. Congress takes legislative action. For gift tax purposes, the Unified Credit amount increased to $1,000,000 in 2002 and all years thereafter. Thus, the Unified Credit becomes a valuable tool. Since this credit impacts both on your estate and gift planning, you should consider structuring a plan that will provide the greatest use of the credit.

These are a few of the problems that could arise when using joint tenancy as an estate planning tool. It can work for a small amount of estates, and it is a good way to avoid probate and easily transfer your asset. However, it is not for everyone. To get a better understanding of how it can affect your estate, consult with an estate planning attorney to make sure that you have an estate plan in place that carries out your wishes.