It is not uncommon to find individuals who have decided to approach estate planning by putting real estate, often a home, and other assets (like bank accounts) in joint ownership, usually with a husband and wife, and an adult child or children. Is this a good idea?
Let’s begin by exploring the ways real property (and other assets) is generally held.
Sole Ownership — one individual owns the asset.
Tenants in Common — two or more individuals own an undivided interest in property. Example: A and B each have a 50% interest as tenants in common. Should A die, his/her 50% undivided interest in the property would pass to his/her heirs as an asset of A’s estate. Stated differently, B, the survivor keeps ownership of 50% of the property while the estate of the deceased owner owns the remaining 50% of the property. In effect B is in a partnership, so to speak, with the heirs of A.
Joint Tenants with Rights of Survivorship — the survivor(s) “takes all”. Assume Siblings X, Y and Z own a property. If X dies, then Y and Z own it all. When Z dies, then Y, the sole survivor, owns it. The estates of X and Z (and their children) have no claim to the property because of the rights of survivorship. In other words, the survivor, Y, takes all.
The impetus for parents to jointly title property with a child or children is often to ensure that the child will get the property when the parents die, and, in other cases, to avoid doing better estate planning. The critical assumption is that the parents will die before the child or children.
Sometimes this sort of planning does not work because a child meets an untimely death. In the “premature death of a younger generation” scenario, the older generation may be thwarted with no back-up planning specifying what other relatives should get the property when the second spouse dies. In addition, third generation heirs (grandchildren) may receive nothing if their second-generation parent(s) die(s) before the older generation passes on.
Another problem with the “joint ownership approach” can arise when the surviving spouse remarries. The younger generation may be ignored as happened in a real case with my grandparents, Marshall and Bertha. After Bertha died Marshall remarried and his second wife Roda knew the ropes, so to speak, because Roda had been married twice before the Marshall-Roda marriage. Roda convinced Marshall to jointly retitle all of his properties to Marshall and Roda as tenants by the entireties (“by the entireties” meaning the surviving spouse gets all the properties so re-titled). After Marshall died Roda gave the retitled Marshall-Roda properties to children of Roda’s earlier marriages and children of the Marshall first marriage to Bertha got nothing, “zip”. Guess what? After explaining this particular legal result to my mother and her siblings (my aunts and uncles) numerous times they never believed me! Marshall had a Will stating that his children of the first marriage would each get a house. Had Marshall’s handwritten Will been declared valid (which it wasn’t) the children of the first marriage would still be out-of-luck because the wording on the deeds is controlling. Another clear example of why joint ownership is not always a good estate planning alternative.
Another problem with any form of joint ownership is the need to get the signatures of all the owners when the property is sold. The relationships between children and parents may change over time, so when the parents want to sell their home and “move on” a recalcitrant child may refuse to sign a new deed transferring the home to would-be buyers. If the parent’s home were titled to their Revocable Living Trust (RLT) the “recalcitrant child” situation would not be a problem. Expressed differently, a child or children may not prefer that the parents sell their home, but they could not stop them from doing so.
So, what is the best alternative? Plan ahead, using a Revocable Living Trust to provide flexible and practical alternatives for you and your family.