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. Joint property is also easy to setup since it can be done at the bank when opening an account or title company when buying real estate.
You should be aware that joint ownership can also cause unintended consequences and complications. Here are some considerations.
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 co-owner’s old 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. However, 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. (No one wants to sue their family members, or the cost.)
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. Your adult child may not be able to afford a tax bill based on decades of appreciation.
These decisions are too important and complex to be left to chance. A good real estate professional should direct you to an estate planning attorney that can help you decide the best way to manage your property to meet your needs and goals now and in the future.
