Hi
Joint tenancy with rights of survivorship (JTWRS) is probably the most popular way for a couple to hold property, because it avoids probate when one of the owners dies. However, joint ownership comes with some
significant disadvantages that most people don't realize. Joint tenancy with rights of survivorship is seen to be particularly "dangerous" when all the issues are understood.
Evil #1: When you add a joint owner to property, you lose control of the property. The new owner's interest in the property is for the whole property. They do not own just a piece. This means that if you ever want to sell the property you have to get the signature of the other person on the deed. If the
other person refuses to sign the deed, you will be unable to sell, transfer, or gift the property to someone else.
Evil #2: Property held in joint tenancy is subject to the creditors of every one of the joint tenants. The liability exposure of the assets held in joint tenancy multiplies every time a joint tenant is added to the property. From an asset protection standpoint, joint tenancy is bad news.
Evil #3: There are also gift tax ramifications. When you add someone
as a joint owner to a property, you are giving them ownership of the property with you. This means that the value of the gift that you are giving is equal to half the value of the property. If a gift exceeds $14,000, which most real estate does, then you will be taxed on the value of the gift over $14,000.
Evil #4: Property that is passed on through joint tenancy does not get a "stepped-up" basis. Normally, when property is passed on through a will, trust, or probate, the basis is
"stepped-up" to the fair market value of the property on the date the owner died. The basis of the property is the purchase price of the property minus any depreciation that has been taken on the property. When property is sold, the tax is determined by taking the sale price and subtracting the basis to get the income amount, which is then taxed. When the property is sold after passing through joint tenancy, the original basis of the property will be used to determine the amount of income
tax that will be owed. If the property had received the "stepped-up" in basis, because the property passed through an estate, the amount of income tax would be much less, even zero if the property is sold soon after the owner's death.
Holding property as joint tenants does help get around probate for the first person to die, but it does not help the heirs when the last owner dies. When there is only one joint tenant left or both of the joint tenants die at the same time, the property
must be probated. Adding a child to the deed or accounts opens a whole other can of worms, but that is a topic for another tip. Joint tenancy only delays probate--it does not avoid it. I would recommend putting the property into a revocable trust instead. This would allow you to avoid probate instead of just delaying it.
