People often set up bank accounts or real estate so that they own it jointly with a spouse or other family member. The appeal of joint tenancy is that when one owner dies, the other will automatically inherit the property without it having to go through probate. However, joint ownership can also cause unintended consequences and complications.
The other owner’s debts become your problem.
Any debt or obligation incurred by the other owner could affect you. If the joint owner files bankruptcy, has a tax lien, or has a judgment against them, it could cause you to end up with a new co-owner – your old co-owner’s creditors!
Your property could end up belonging to someone you don’t intend.
Some of the most difficult situations come from blended families. If you own your property jointly with your spouse and you die, your spouse gets the property. On the surface, that may seem like what you intended, but what if your surviving spouse remarries? Your home could become shared between your spouse and her second spouse. And this gets especially complicated if there are children involved: Your property could conceivably go to children of the second marriage, rather than to your own.
You could accidentally disinherit family members.
If you designate someone as a joint owner and you die, you can’t control what she does with your property after your death. Perhaps you and an adult child co-owned a business. You may state in your will that the business should be equally shared with your spouse or divided between all of your kids; however, ownership goes to the survivor – regardless of what you put in your will.
You could have difficulty selling or refinancing your home.
All joint owners must sign off on a property sale. Depending on whether the other joint owners agree, you could end up at a standstill from the sales perspective. That is unless you’re willing to take the joint owner to court to force a sale of the property. And what if your co-owner somehow becomes incapacitated? In that case, you may have to petition a court to appoint a guardian or conservator to represent the co-owner’s interest in the sale. Appointed guardian may see his responsibility as protecting the other owner’s interest–which might mean going against you.
You might trigger unnecessary capital gains taxes.
When you sell a home for more than you paid for it, you usually pay capital gains taxes–based on the increase in value. Therefore, if you make an adult child a co-owner of your property, and you sell the property, you’re both responsible for the taxes.
On the other hand, heirs only pay capital gains taxes based on the increase in value from when they inherited the asset, not from the day you first acquired it.
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.
Our team can assist you in planning to reduce estate taxes, avoid potential legal pitfalls, and set up a trust to protect your loved ones.
The information above is general in nature and is not legal advice specific to your situation. If you have questions about your business, estate plan, or protecting your business or personal assets, you should speak with an attorney in your area for legal advice. If you live or do business in California and would like to speak with The Law Office of Tawnya Gilreath regarding your situation, please schedule an appointment.