When a couple set up a bank account or buy a home, they often elect to own that property as “joint tenants” or “jointly.” Owning property jointly has several appeals, such as automatic inheritance by the surviving spouse after one passes away and the ease of setting it up when acquiring the property. Nothing is perfect, and neither is joint tenancy. Owning a property jointly can have several unintended consequences. It is important for you to consider all these factors and then decide if joint ownership is best for you. This blog today will focus on the perils of joint property.
The other owner’s debts become your problem
Jointly owned property is vulnerable to the debts of one or both of the owners. If a joint owner files for bankruptcy, divorce, had a court judgment against them, or any other creditor issue, that property can be used to satisfy that debt. This means that you may find yourself having to sell that asset to pay off a debt that is not your own.
Your property could end up belonging to someone you don’t intend
The transfer of ownership of joint property is often a positive, but may complicate some situations. If, for example, you pass away and your surviving spouse remarries, your home may go to the new spouse after your surviving spouse passes away rather than going to your children.
You could accidentally disinherit family members
If you are a joint owner with someone and you die, you can no longer control what that co-owner does with the property. Joint ownership also trumps your will, so if you own a property jointly with one child, but your will divides up the property among your multiple children, the one children who is a joint owner gets everything.
You could have difficulty selling or refinancing your home
All joint owners must sign off on a property sale. If you want to sell a joint property for whatever reason and your co-owner disagrees, you will be unable to sell the property until an agreement is reached, if ever. You can always go to the court and win the battle, but you will probably destroy a previously cherished relationship.
You might trigger unnecessary capital gains taxes
Selling a property often triggers taxes, and both owners are responsible for those taxes, which your co-owner may not be able to afford.
After you pass, your property will be revalued as to your date of death. This will decrease any taxes due from selling the property. If, however, your fellow joint owner survives you, only half of the property gets revalued, which leads to more taxes. If you remained the only owner rather than put on a child as a co-owner, for example, that property would have received a full revaluation and even less taxes would have been due.
You could cause your unmarried partner to have to pay a gift tax
If you buy property and place it in joint tenancy with an unmarried partner, the IRS will consider that to be a taxable gift to your partner. This can create needless paperwork and taxes.
Final Thoughts on Joint Ownership’s Perils
So, what are your options. You first responsibility is to become educated on your options. Working with an estate planning attorney can help you know the ins and outs of these decisions and when joint tenancy fits your needs, as well as your options when joint ownership does not work for you.
Estate planning is ultimately about relationships and providing for loved ones, not property and ownership. Contact The Rains Law Firm or schedule a complimentary initial meeting to talk about how to make your property strengthen your beloved relationships.