Do you own your home, other property, or a financial account with someone else, like a spouse, adult child, or someone not related to you by blood or marriage? If so, you might be surprised that a common way of owning property could create future problems for your loved ones. There are several forms of joint ownership, but two of the most common in Texas are tenants in common and joint tenants with right of survivorship.
Tenants in Common means you each own your portion of the account or property. When you die, your portion will pass to your heirs or beneficiaries. This transfer is not automatic, and typically will need to be part of the probated estate in order to fully and completely transfer ownership. As an Example: you and one of your adult children own a vacation home together. When you pass away, your co-owner adult child keeps their portion and your portion is split between your beneficiaries, such as your spouse (if they are still alive), your other children, and anyone else designated as a beneficiary under your estate plan.
With Joint Tenants With Right of Survivorship (JTWROS), it means that multiple people own an account or property, and when one of those owners dies, the surviving owner(s) automatically take ownership of the account. This is true if there are only two owners or multiple. For example: If you and two of your adult children own a bank account together. When you pass away, the two adult children who are named as owners on the account each own 50% of the account (where they once owned 1/3rd). This transfer of ownership happens automatically, and doesn’t have to wait for legal administration, nor is it subject to the terms of your will or your trust.
Joint Ownership Doesn’t Avoid Probate Forever
Many people believe owning property jointly lets them avoid probate entirely. Probate is the court process for transferring solely owned property without beneficiaries to heirs after someone dies. Property owned as JTWROS avoids probate when the prior owner(s) pass, but it doesn’t guarantee probate will be avoided permanently. If the last surviving owner dies, probate is required unless the last surviving owner added yet another joint owner, beneficiary, or used a trust. This means, if all joint owners die at the same time, probate may be required right away.
Joint Ownership – Did You Mean to Disinherit All Your Other Children?
This situation is one of the most common and heartbreaking surprises for families. Your will or trust has no say over accounts and property you own jointly as JTWROS. Remember, all JTWROS accounts and property automatically pass to the surviving owner or owners. The following are a couple of possible scenarios:
● If you add your spouse as a joint owner with survivorship rights—and your spouse is not the parent of all of your children—you could unintentionally disinherit your children. When you pass away, your spouse will automatically become the sole owner of the entire account or property and can leave it to whomever they choose. There is no way to guarantee that it will go to your children.
● If you add one of your children as a joint owner with survivorship rights, that child will automatically inherit the entire account or property when you pass away, leaving your other children with nothing. The child who owns the property will have no legal obligation to share it with their siblings.
Here is an Example:
Robert inherited his family’s vacation home when his father died. He added his wife, Joan, to the home’s title as a joint owner with rights of survivorship. Robert wanted to avoid probate by doing this. After Robert died, Joan became the sole owner of the vacation home. She remarried a few years later and added her new husband to the title as a joint owner with survivorship rights. When Joan died, her children were shocked to learn her new husband became the sole owner of the vacation home. Their father had always promised the home would stay in the family and be left to them.
Other Risks of Joint Ownership
● Adding a co-owner is easy, but removing one can be hard. If they refuse, court action may be required and isn’t always successful.
● Joint ownership exposes your property to the other owner’s debts. If they’re sued, you could be forced to sell to satisfy a judgment.
● Adding someone without compensation is considered a gift. This may trigger gift tax or reduce your lifetime gift and estate tax exclusion.
● If a co-owner becomes incapacitated without a power of attorney, court involvement is needed to act for them and may continue indefinitely.
Next Steps
Avoid leaving your family’s future to chance. A simple review of how you own your accounts and property can help ensure that your estate plan works the way you want. We can help you understand your options and protect your loved ones. Joint ownership may seem simple, but as you can see, it can put your accounts and property—and your loved ones’ inheritance—at risk. The good news is that these problems are preventable. We are here to help you understand your options and find the right solutions for yourself and your loved ones. Nielsen Law PLLC Provides family-focused estate and business planning to individuals and families in Austin, Round Rock, Cedar Park, and the Central Texas area. For more information, and to learn about our firm, please contact us to learn how.
