Joint tenancy is seen by many as one of the easiest ways to pass on their assets to their loved ones without having to go through probate. While it is true that a joint tenancy arrangement can help you bypass the probate process, it is not an effective tool for estate planning – due to the inherent disadvantages associated with the arrangement.
How Does Joint Tenancy Work in California?
Under a joint tenancy agreement with rights of survivorship, you can co-own a property with one or more people – all of whom have ownership interests in the property. When you die, your ownership interest in the property will get transferred to the joint tenants.
As simple as the arrangement might sound, it can lead to several problems down the road.
What Are the Disadvantages of Joint Tenancy as an Estate Planning Tool?
Your Estate Might Have to Go Through Probate Even with Joint Tenancy
The biggest reason why many people – especially couples – select joint tenancy is that it allows them to bypass the probate process. However, the truth is that even with joint tenancy, your estate still might have to go through probate under certain circumstances.
Let us assume that you and your spouse own your home in joint tenancy. If you and your spouse die in a car accident, your property has to go through probate, since both the owners are dead. A guardian or conservator appointed by the probate court will decide how your assets should be distributed among your beneficiaries.
Let us now picture another scenario. You and your spouse own your home in joint tenancy. A few years later, you die of a heart attack and your spouse inherits the home. However, your spouse is too distraught with your death to add another joint tenant. A few years later, your spouse dies – without adding any joint tenant to the property. Again, in such a situation, probate becomes unavoidable.
The Risk of Liens
There are many circumstances under which a lien could be placed on your joint tenant’s ownership interests in your property.
If your joint tenant injures someone accidentally and gets sued as a result, they might have to pay compensatory damages to the injured party. If they do not have sufficient liability insurance coverage, the court might decide to place a lien on their ownership interest in your property in order to compensate the victim.
If your joint tenant is unable to pay off their debts, the creditors might choose to file a lawsuit against them. If they win the case, a lien can be placed on your joint tenant’s ownership interest in your property.
If your joint tenant has children from their previous marriage and if they are unable to pay child support, the recipient can approach the court and get a lien placed on your joint tenant’s ownership interest in the property.
If your joint tenant fails to pay back taxes, the IRS might decide to place a lien on their ownership interest in your property – as well as any other property they own. If the amount owed by your joint tenant is substantial, the IRS can force a sale as well.
You Might Not Be Able to Pass on Your Assets to Your Loved Ones
This is by far the biggest disadvantage associated with a joint tenancy agreement.
Let us assume that you and your spouse jointly own all your marital assets and have two children. After your death, your spouse will inherit all your assets automatically. If they decide to remarry and name their new spouse as the joint tenant, your children might be left with nothing in the event of your spouse’s death.
Let us picture a different scenario. You and your spouse both have children from your previous marriages. After your death, your spouse decides to add the children from their previous marriage as joint tenants. Again, in such a scenario, your children might be left with nothing.
In other words, far from making it easier for you to pass on your assets to your loved ones, a joint tenancy agreement might actually prevent you from doing so.
Trusts – The Better and Safer Alternative to Joint Tenancy
If you want to protect your assets in the event of your death and make sure they are passed on to your loved ones, setting up a trust is generally a much better option than getting into a joint tenancy agreement with your spouse or anyone else for that matter.
A trust not only allows you to bypass the probate process, but the right types of trusts can also protect your assets from liens and make sure they are managed, divided, and distributed exactly the way you intended them to be.
Need Help with Estate Planning? Contact Our Southern California Estate Planning Attorneys Today
At Garmo & Garmo, we are committed to providing high quality estate planning services to our clients. Our attorneys are highly skilled and have over 80 years of combined experience in this area of law. We can craft a comprehensive estate plan that is customized to your needs and can accomplish your goals both now and after you are gone.
To schedule a free consultation with one of our seasoned attorneys, call us today at 619-441-2500 or contact us online.