Vantage Point Legal Services LLC

Joint Tenancies

WHAT ARE JOINT TENANCIES?

Joint tenancies are various forms of ownership of property by two or more individuals together. There are three (3) basic types of joint tenancies:

  • Joint Tenancy with Right of Survival
  • Tenancy by the Entirety
  • Tenancy in Common

WHAT IS A JOINT TENANCY WITH RIGHT OF SURVIVAL?

Joint tenancy with right of survival differs from other types of co-ownership in that the surviving joint tenant immediately becomes the owner of the whole property upon the death of the other joint tenant. This is called a “right of survivorship.” Joint ownership has rather rigid legal limitations and consequences that are sometimes not intended.

WHAT IS A TENANCY BY THE ENTIRETY?

A joint tenancy between a husband and wife is generally known as a “tenancy by the entirety”. It includes full rights of survivorship in the surviving spouse. Tenancy by the entirety has some characteristics different than other joint tenancies, such as the inability of one joint tenant to sever the ownership and differences in tax treatment.

WHAT IS A TENANCY IN COMMON?

A tenancy in common is another form of co-ownership. It is the ownership of an asset by two or more individuals together, but without the rights of survivorship that are found in other joint tenancies. Thus, on the death of one co-owner, his or her interest will not pass to the surviving owner or owners, but will pass as he decides according to his or her will or, if there is no will, by the law determining heirship.

HOW IS A JOINT TENANCY CREATED?

State law controls the creation of a joint tenancy in both real and personal property (real property consists of land and attachments to the land, whereas personal property generally consists of all other types of property). For transfers to two or more persons who are not husband and wife, the deed or conveyance must expressly state an intention to create a joint tenancy by noting specifically whether the property will be held as tenants in common or as joint tenants with rights of survivorship. For transfers of personal property, such as stock certificates, the simple letters “JTWROS” may be used to designate a joint tenancy with right of survivorship.

WHAT PROPERTY CAN BE HELD IN A JOINT TENANCY?

A joint tenancy can be created in almost any type of property. Different types of jointly held property have different characteristics. Either joint tenant of a bank account usually may withdraw the whole amount on deposit, or close the account, depending upon the way the account agreement is written. The signatures of all joint tenants are generally required in order to transfer or sell bonds and corporate stocks. All joint tenants, and their spouses, must sign deeds and contracts to transfer or sell real estate.

IS A JOINT TENANCY AN ADEQUATE SUBSTITUTE FOR A WILL OR TRUST?

No! Only with a properly drafted will or trust can a person be certain that his or her assets will pass as intended. A will or trust, properly written and executed, applies to all of the property of the maker for which he or she has not otherwise provided. Almost everyone should have a will, even though he or she has provided for property to pass by joint tenancy, beneficiary designation (as with life insurance, POD and TOD designations) or by a trust.

A joint tenancy is not a “catch-all.” It applies only to the specific property described in the instrument creating the joint tenancy. Furthermore, while a joint tenancy may provide for survivorship upon the death of one of the joint tenants, no provisions are included for the disposition of the property upon the death of the survivor; in that event, the property would still need to go through probate. In addition, the joint tenant who is intended to be the survivor may die first, frustrating the intent of the parties. A properly drafted will or trust would address these and many other of life’s uncertainties.

A joint tenancy is a present transfer of an actual interest in most property. Except for joint bank accounts, it cannot be revoked or reversed without the written consent and cooperation of all joint owners, and for real property the cooperation of the joint tenant’s spouse is also required. Creating a joint tenancy with someone other than your spouse is risky and may result in a gift tax liability.

A will is revocable and may be changed as circumstances change. A revocable trust is revocable and may be changed as circumstances change. These are the cornerstones of an effective estate plan.

DOES A JOINT TENANCY AVOID PROBATE EXPENSES?

To some extent, joint tenancies can under certain circumstances reduce probate involvement and expense. However, while joint assets will avoid the formal estate administration that is required when property passes under a will, other costs may well arise. Steps must be taken to reregister the assets in the survivor’s name and to comply with the various state and federal tax requirements. The process is not as quick and easy, nor as inexpensive, as one might think. In addition, placing assets in joint names with another person, especially someone other than a spouse, creates uncertainties and subjects the assets to the disadvantages discussed below.

WHAT ARE THE ADVANTAGES OF A JOINT TENANCY?

Some of the advantages are:

  1. There may be convenience at the time of death of the first joint tenant to die, because property passes to the survivor without the need for probate administration. Generally, only a death certificate is needed to further deal with the property.
  2. Where an estate is of very moderate size, and the first to die wishes all of his or her property to pass outright to a surviving spouse, joint ownership may afford a convenient and economical way to pass title to the particular property so owned.
  3. The family residence is often held in joint names, especially where the surviving spouse is likely to continue to use the property as his or her home. In that case, joint ownership may be an appropriate method of ensuring continuity of ownership.
  4. A joint household checking or savings account can offer a married couple both convenience and flexibility, as it makes funds immediately available in the event one spouse dies or becomes incapacitated.
  5. A jointly owned asset, such as a home, will not be subject to judgments against only one of the joint owners.

WHAT ARE THE DISADVANTAGES OF A JOINT TENANCY?

A few, but not all, of the disadvantages are:

  1. The one who originally owned the property alone, and later places it in a joint tenancy, is no longer the sole owner. If the original owner later desires to dispose of the property, in many cases he can sell only his part interest only if all of the other joint tenants agree in writing and cooperate.
  2. If both joint owners die in a common accident or disaster, such as a car accident, the asset will have to go through probate. In addition, if it cannot be determined who died first, serious legal problems and an increase in the cost of probate may result.
  3. If a conservator is appointed for the original owner, the probate court’s consent may be required to use the asset for that owner, increasing the cost of the conservatorship.
  4. If minors or legally disabled adults are involved as joint owners, costly and cumbersome conservatorship proceedings may be necessary.
  5. An ever-present danger in joint tenancy arrangements is that the co-owners may disagree or quarrel over the management or sale of the property. If the co-owners do disagree, a costly and time consuming law suit may be required for the original owner to exercise his or her intentions for the asset.
  6. If an asset is owned prior to marriage and later place in joint names with a new spouse, the original owner will lose part of the asset in a later divorce.
  7. The financial management advantages of trusts are eliminated, especially where aged parents or minor children are involved as joint tenants, as are the possible tax-savings features of trusts and estates.
  8. Assets may not be available to the personal representative for the payment of debts of a deceased joint owner’s estate. In such a situation, it may then be necessary to sell other assets, possibly at a sacrifice, in order to meet tax payments or other cash needs to settle the affairs of the decedent.

WHAT TAX CONSEQUENCES COULD RESULT FROM THE CREATION OF A JOINT TENANCY?

Serious tax disadvantages may result from the unadvised use of a joint tenancy.

If all the property owned at death, including the decedent’s share of joint property, life insurance and employee benefits, exceeds $2,000,000 for decedents dying in 2008, the estate may be subject to federal and state estate taxes. This figure goes up to $3,500,000 for individuals dying in 2009, and even higher in 2010. Estate taxes are not automatically avoided simply by using joint tenancy. In many instances, all or part of jointly held property may be taxable in the estate of the second joint tenant to die, due to the failure to take advantage of what is called the “Unified Credit” against tax in the estate of the first spouse to die. This is a rather complicated set of tax consequences that we would be pleased to explain to you in detail applicable to your circumstances.

In addition, the unadvised use of a joint tenancy may cause the property to fail to receive what is called a full “step-up in basis” on the death of the first joint tenant. An asset owned jointly may retain part of its original cost basis, and not receive a full step-up to the then current fair market value of the entire asset. Upon the sale of the asset after the death of one owner, the income taxes may be significantly increased by the unadvised use of a joint tenancy.

The creation of a joint tenancy may also result in a gift tax. While recent changes in federal tax laws have to a large extent minimized the gift tax consequences of joint ownership, especially between spouses, effective tax planning for large estates can be greatly complicated by the unadvised use of joint property arrangements.

CAN A SAFE DEPOSIT BOX BE JOINTLY HELD?

Yes. Under Missouri statutes, a safe deposit box can be jointly rented. This type of registration must be specifically noted in the rental agreement with the bank or safe deposit box company. With a jointly rented safe deposit box, the surviving joint tenant will have immediate access to the box upon the death of the other joint tenant. However, even though a safe deposit box is rented in joint names, that alone does not mean that all of the assets contained in the box are also jointly owned. Joint ownership of a safe deposit box may complicate matters rather than making them simpler.

Sometimes a safe deposit box may be titled in the owner’s name alone, but with the designation of an agent or attorney-in-fact. It must be remembered that the authority granted under such an arrangement terminates, and the agent or attorney-in-fact no longer has ability to gain entry to the box, immediately upon the death of the owner.

SHOULD I USE A JOINT ACCOUNT TO ALLOW FOR ASSISTANCE IN WRITING CHECKS?

Only with great caution. Some people want to place a child or someone else on a checking account as a joint tenant to help them write checks to assure that bills are paid in the event the original owner is unable to do so. An often unintended result is that, upon the original owner’s death, the entire account will belong to the surviving co-tenant, and other heirs will not share in it. Oral understandings about what is to be done with the account balance upon death are frequently misunderstood and often forgotten. Furthermore, the surviving joint tenant may be subject to gift tax consequences if he or she attempts to share the funds in the account with other intended heirs after the original owner’s death. In some cases, a well-drafted letter of understanding between the joint owners can address the issues raised above. However, anyone with a concern or needing help in this area should consider the possible use of a durable power of attorney to meet those needs.

ALTERNATIVES TO JOINT TENANCY: BENEFICIARY DESIGNATIONS

Also available to you is the use of a broad category of beneficiary designations that operate very much like the beneficiary designation you would find on a life insurance policy. Missouri statutes now provide for the use of beneficiary designations to effectuate the transfer of certain types of property at the time of death without having to go through probate and without the disadvantages of joint tenancies. Beneficiary designations cause property to avoid probate because their contractual nature serves to transfer and convey ownership of the asset or its proceeds to the named beneficiary immediately upon the death of the owner or owners without the necessity of going through probate. Please see the section below entitled “Beneficiary Designations” for a fuller discussion of how beneficiary designations are often a wise alternative to joint tenancies.

WHO CAN BEST ADVISE YOU ABOUT A JOINT TENANCY?

You should never create a joint tenancy without the advice of an attorney who practices in this area of law. He or she will be able to advise if a joint tenancy is right for you.