Be Careful with Estate Planning Shortcuts – Joint Tenancy

Money is always tight. No matter where you fall on the income and asset ladder, no one wants to spend money unnecessarily, including on services that are not sure they need. However, sometimes that reluctance can lead to mistakes which actually cost money down the road. Estate planning–or the lack of it–is the poster child for this situation. Some community members are tempted to try half-measures and “do it yourself” planning instead of actually visiting with a legal professional and ensuring comprehensive security for the long-term.

One of the most common methods of this homemade planning is the use of joint tenancies to transfer property. While a joint tenancy may make sense in certain situations, when used improperly, serious adverse and unintended consequences might result. It is critical to be aware of those risk factors. An article published earlier this month by the Gazette provides a helpful primer of some of those pitfalls.

Act Cautiously
It easy to understand why someone–usually an elderly individual–might place an adult child or trusted friend’s name as a joint tenant on real property, bank accounts, or other assets. The idea is that upon the senior’s death the property will transfer automatically to the other person without the need to go through probate. But it is often not that easy.

One of the most common ways that this joint tenancy is a hindrance is when the senior mistakenly believes that the terms of a will trump the automatic rules applied to the joint tenancy. For example, a will may indicate that a parent wants her property split evenly between her children. However, if only one child is named as a joint tenant on some account, the funds in that account will transfer automatically to the one child–the provisions in the will have zero bearing on those assets. This very quickly can lead to unequal allocations, in-fighting, and subsequent legal battles between surviving children.

Things are even more complicated if the joint tenant has debt problems of his or her own. The creditors of one of the tenants may be able to reach the property, causing a myriad of problems with potential repercussions on long-term care, inheritances, and more.

The bottom line is that it is almost never advisable to take short-cuts and believe that it is a substitute for actual estate planning. As tempting as it might seem, checking a box on a form and giving another “joint tenancy with right of survivorship” will usually not make the asset transfer process easier. Making matters worse is that some employees at financial institutions might actually urge clients to take assets in joint tenancy. Never forget that these individuals usually do not have legal training and their recommendations are a far cry from tailored legal advice.

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