subject: Jointly Owned Property, the Big "Oops" [print this page] Jointly Owned Property, the Big "Oops" Jointly Owned Property, the Big "Oops"
Jointly owned property is everywhere. While we were growing up, our moms and dads owned all of their assets jointly. So when we got married, we did the same. We own our assets jointly with our children, second spouses, and siblings. When a joint owner is sued or dies, we see why joint owned property is the big "Oops."
Howard's Estate Plan
Howard made the effort to have a great estate plan established. He wanted to provide for his first wife, Marla; his three daughters; and his second wife, Beth. His trust had all the right provisions, dividing the assets among his beneficiaries and protecting them from creditors such as lawsuits.
Howard died. What happened?
If Howard transferred all of his assets into the name of his trust or owned them in his individual name, his wishes would be carried out and all beneficiaries would share the assets as Howard intended.
However, if Howard owned his assets, as most married couples do, jointly with Beth (his second wife), all the assets would go to Beth and the other beneficiaries, Marla and the daughters, would receive nothing.
Jointly owned property has a survivorship feature so by operation of law, the property goes to the surviving owner.
These are quite different results. So even if Howard had a great estate plan in place, if he didn't own his assets properly, his planning was all for naught.
Martha's house
Martha was recently widowed and she's trying to simply her life and make things easier for her adult children. She puts her eldest child's name (Grace) on the deed to her house in joint tenancy to make things easier when she passes.
Oops is right.
First of all, by transferring the house during her lifetime, her children will not receive a full step up in basis upon her death. They get Martha's transferred basis and will owe capital gains on the one half of the increased value upon resale.
Second, Grace will inherit the house when Martha dies. Martha's other children will have no right to the house or its value. This is the result of the survivorship feature of jointly owned property.
Third, what if Grace gets divorced, is sued, develops a drug addiction, or just wants the house? In all of these cases, Martha may lose her house.
If you have questions about jointly owned property, consult with a qualified estate planning attorney.
