Numerous types of property can be jointly held, including real estate, bank accounts, and just about any asset that you can own individually. When property is owned as “joint tenants with full rights of survivorship,” the property passes to the surviving owner at death.
Often, a husband and wife will own property jointly. When one spouse dies, the jointly held asset passes on to the surviving spouse without tremendous difficulty. For instance, say Mom and Dad own their house jointly. Mom dies. Upon her death, the home passes on to Dad (the surviving spouse) without a need for probate (an expensive and time consuming court proceeding for dividing up assets after someone dies). A simple deed accomplishes this objective.
The Problem with Jointly Held Property
Jointly held property usually works well between spouses. The problems crop up when Mom or Dad decides to add children as joint tenants to deeds, bank accounts or other assets.
For example, consider the following typical scenario. Mom decides to add her oldest child to the bank account to help her write checks. Mom then says to the oldest child, “make certain to split everything equally with your brothers and sisters when I pass.” As an optimist, I have observed that 70 to 80% of the time, the oldest child honors Mom’s request. However, the other 20-30% of the time, all kinds of things can go wrong.
Some possible scenarios –
Mom passes and the child named on the bank account keeps all the money. This, unfortunately, happens more often than people think. Although there are ways to successfully challenge this abuse, too often the wrongdoer walks off with the money. At times, these bank accounts are quite significant.
Dad puts all the children on a deed for the home or cottage to avoid probate. Two years later, a son who has no improper intentions, ends up in a divorce. The son’s spouse argues that the property is part of the marital assets and thus should be part of the divorce settlement. Consequently, the property gets tied up in legal proceedings for some time.
After adding all the kids to the cottage up north, Mom decides she would like to sell the property. However, one daughter doesn’t want to sell. The family gets locked up in a legal action called a “partition” in which the court must separate and divide up the property.
Even though adding children as joint tenants to property is usually well-intended (i.e. to avoid probate), the action has many consequences.
Bottom line: jointly held property between children and parents as a method of avoiding probate is generally a bad idea.
Instead, I recommend the use of a simple trust. A trust is really nothing more than a will that avoids probate.
In the typical scenario, a trust provides that everything passes to Mom if Dad dies first, or to Dad if Mom dies first. When both Mom and Dad are gone, everything left is divided equally between the children. There are obviously many more complex family situations that can be addressed through appropriate planning.
Think of a trust as simply a will that does not go through probate. It is an easy and inexpensive way to avoid legal costs and time delays for your loved ones after you are gone.
For more information about a trust, click on the link https://robertbancroft.com/practice/wills-and-revocable-living-trusts/.
Still have questions? Contact me now.