Joint tenancy might seem like a simple way for two or more people to hold property together. However, this form of ownership can create problems, like inheritance issues. For example, a son and daughter inherit a home from their father as joint tenants with right of survivorship (JTWROS). Later, the daughter dies. What happens to her interest in the home? Her children will not inherit their mother’s share, because their uncle now owns 100 percent of the house as the surviving joint tenant.
If you want your child to inherit your home without the delays and expense of probate, you might think that retitling the property to yourself and your child as JTWROS is a simple and inexpensive way to accomplish those goals. There are several dangers to this strategy.
A JTWROS is irrevocable. If things go sour between you and your child, you can only take your child off of the title to the home with his written permission.
Your child can sell his ownership interest to someone, and you will get stuck with that person having an equal right to live in the home with you. Your child does not have to get your consent to transfer his interest in the property. You gave up half of your right to your own home and all of the control over that one-half interest.
Creditors of your child can come after his one-half share of the home. You might have to pay off his creditors to keep them from foreclosing on the home. This scenario could play out repeatedly.
People who set up their wills or trusts passing property to two or more people as JTWROS might not understand the consequences of this designation. The person making the will or trust might not intend to “disinherit” their grandchildren, and the person who enters into a JTWROS with his adult child might not realize the pitfalls. He might not have known he had other options. There are several alternatives to joint tenancy.
If you execute a beneficiary deed, instead of a JTWROS arrangement, your child has no current interest in the home (and neither do his creditors). He only receives rights to the property upon your death. You can revoke the beneficiary deed at any time, which makes this option a better choice than a life estate, which is irrevocable. Note: Not all states have statutes authorizing beneficiary deeds, but an increasing number of states are moving in that direction.
TOD and POD
For non-real estate assets, think TOD and POD to avoid probate. For example, you can name your child as the beneficiary of your bank or investment account with the magic words “transfer on death” or “payable on death” (depending on the type of account) on your account with the financial institution.
For married couples who want to avoid probate, holding title to real property as Community Property with Right of Survivorship (CP-WROS) might provide some tax advantages over jointly titled property and allow you to avoid probate. The rules governing CP-WROS vary from state to state.
You can transfer your assets to someone upon your death and avoid probate, by using a living trust. The trust will ideally be revocable, so you can change your mind at some later date. There are many types of trust agreements you can use, depending on the purpose of the trust and what you want to accomplish.
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