IS JOINT TENANCY A GOOD ESTATE PLAN
Last week I had a meeting with a client regarding his estate plan, and his primary question was whether he could use joint tenancy to avoid probate and/or the costs of preparing a trust.
As an estate attorney for the past twenty years, I have seen numerous estates handled by re-titling assets in joint tenancy, and many were administered without any problem and minimal costs; however, I have also seen as many estates run off the rails as a result of using joint tenancy.
First, before delving into the subject, I don’t have a major objection to using joint tenancy because of spouses, as long as the joint tenancy implements the parties’ intentions and is the most advantageous to the client. Accordingly, most of this article is focused on using joint tenancy, commonly with the client’s children.
In looking at this question the first thing to do is clarify what the term “joint tenancy” means. The term joint tenancy has significant legal meaning; in short, it means that upon the death of the first person, their interest is immediately vested in the survivor(s). For example, if a father and son own real estate together as joint tenants, upon the first death the property is immediately vested in the survivor.
First, joint tenancy tends to have minimal costs in creating it and in administering it upon the death of one of the parties; clients are often inclined to give substantial weight to its use. However, there are numerous concerns to be aware of in joint tenancy.
Usually, a joint tenancy estate plan is created re-titling the client’s assets in the client and a child or the children as joint tenancy. It is first important to understand the legal significance of this in that the client has now given the child an arguably immediate ownership interest in the client’s property. This means if the client’s child has legal problems such as marital issues, and/or creditor issues and/or has some other type of liability, for example, accused of causing a traffic accident, these are arguably assets of the child and are certainly opened up to possible being considered assets of the child, while in actuality the client was only re-titling the assets for estate planning purposes.
Along the line of giving the child immediate ownership in the property, if the client needs to refinance, sell, grant an oil and gas lease, lease, right-of-way, then not only will the client’s execution be necessary but also the child’s. I cannot tell you how many times I have seen a child, refuse to sign a document that their parent requested, because they didn’t understand it, or was trying to improperly use as leverage against their parent.
Joint tenancy assumes the parent will die first. In visiting with the client in my office last week, the first thing he raised was the fact his father has used joint tenancy to pass his substantial assets to him and his three siblings. (my office was not involved in his father’s estate) In discussing this he said the administer of his father’s estate went off without any hitch and didn’t cost hardly anything in court fees and legal costs.
I am not suggesting that joint tenancy can have some very attractive benefits, one just needs to be wise when implementing joint tenancy. However, in my client’s case, in discussing his father’s estate it came to light that within a month of his father’s death his sister had unexpectedly died: If his sister would have died prior to their father’s death then his father’s estate plan would have been turned upside down, and the family of the deceased sister would have been left out of the estate altogether.
Finally, and scariest of all, is when a client list one child as a joint tenant and gave oral instructions that the child is to share the estate with their siblings. While there are some limited exceptions, this estate plan will fail, with the child listed as the only other joint tenant, thus being the sole owner of the property.
Again, I am not suggesting joint tenancy cannot be a useful estate planning tool, but caution should be used.