Joint tenancy, also referred to as JTWROS, is a method by which two or more owners may hold title to property together. All joint tenants share a whole, undivided interest in the property with right of survivorship.Right of survivorship means that upon the death of any joint tenant, the surviving joint tenants own the entire property, and the deceased joint tenant's interest does not pass to his heirs.
Disadvantages of Joint Tenancy
When you own property as joint tenants, your interest in the property is subject to certain problems of the other joint tenants. For example, if there are creditor claims against any other joint tenant, any liens placed on the property may also affect your interest in the property. Collections actions against one joint tenant, or a joint tenant's divorce, may result in the other joint tenant losing his home. This is why elderly parents are cautioned against creating joint tenancies with their adult children.
Another disadvantage is a joint tenant must have the other joint tenant's approval to transfer or sell an interest in the property. If you grant someone a joint tenancy interest in your property, whether for Medicaid planning, avoiding probate, or any other reason, they can refuse to give it back to you if your change your mind.
Advantages of Joint Tenancy
For estate planning purposes, owning property as joint tenants offers some distinct advantages over other methods of holding title. The primary advantage of joint tenancy is it allows you to avoid probate of the property. Upon a joint tenant's death, the surviving joint tenant immediately owns the entire interest in the property and this takes place without any probate process.
Unfortunately, this advantage is also the source of estate planning mistakes, as many people mistakenly believe they do not need a will or living trust if their largest asset, such as a house, is owned as joint tenants. While owning property as joint tenants can provide you peace of mind knowing the person you want to inherit your property will receive it when you die, most people own other types of assets as well. Don't rely on joint tenancy to avoid making essential estate planning documents such as a will or durable power of attorney.
Common Estate Planning Mistakes
The following are some of the most common estate planning mistakes involving joint tenancy:
1. Joint tenants often assume they have the right to leave their share of joint tenancy property to a named beneficiary in a will or living trust. This often results in estate planning mistakes. Because the surviving joint tenant owns the whole property, the deceased joint tenant's interest does not pass to his heirs or beneficiaries, despite any provisions to the contrary in a will or trust. For this reason, creating a joint tenancy can result in unintentional disinheritance of heirs.
Make sure you understand the ramifications of joint tenancy before granting another person an interest in your property or taking title to new property as joint tenants. It can result in you being unable to leave that interest to your desired beneficiaries, unless you are the last surviving joint tenant.
2. Joint tenancy should not be used to shield assets from Medicaid. Transferring an interest in property to your children and other heirs without receiving fair market value compensation is a gift and can create a host of legal and tax problems.
To determine the best way to achieve your estate planning objectives, consult an attorney.