Owning assets jointly with one or more heirs is a common estate planning “shortcut”. While the advantages of joint ownership can include convenience and avoiding probate, it may also create several problems. Here are several to keep in mind.
Loss of control. Your co-owner may be able to dispose of certain property without your consent or prevent you from selling or borrowing against certain property.
Unintended consequences. If your co-owner predeceases you, his or her share of the property may pass according to his or her estate plan or the laws of intestate succession. If you hold the property as co-tenants, you’ll generally have no say in the ultimate disposition of that portion of the property.
Creditor claims: Joint ownership exposes the property to claims by your co-owner’s creditors or former spouses.
Unnecessary taxes. Adding a child’s name to the title may be considered an immediate taxable gift of one-half of the property’s value. When you die, the property’s value will be included in your taxable estate, although any gift tax paid with the original transfer would be allowed as an offset.
Each of these problems can be avoided without the need for probate with properly drafted trusts.
Questions regarding joint ownership of assets with your children or other heirs? Please contact us.
Scott T. Ditman, a tax partner and Chair, Personal Wealth Services at Berdon LLP, advises high net worth individuals and family/owner-managed business clients on building, preserving, and transferring wealth, estate and income tax issues, and succession and financial planning.