Many people, including most married couples, use joint ownership of their assets as their own self-made mini estate plan. Sometimes joint ownership works to transfer assets upon death. Quite often joint ownership does not work because a joint owner gets sued, gets sick, gets mad, gets greedy, dies in the wrong order or remarries.
What if a joint owner on my bank account or real estate gets sued?
Most joint accounts with banks and other financial institutions allow any joint owner full access to the entire balance in the account. If a joint owner has full access to the account, so do the joint owners’ creditors. If your joint owner gets sued, a judgment creditor may garnish your account since your joint owner also owns that account. I had one client lose her entire life savings held in a joint money market account with her son because her son got sued, didn’t pay the judgment and was garnished.
Similarly with real estate, your joint owner’s creditor may place a tax lien or judgment lien on your real estate in order to secure payment of your joint owner’s debts. I had one situation where a client had to take out a nearly $200,000 mortgage on her home that was owned free and clear, in order to pay off a tax lien of one of her children whom she named as a joint owner on her home.
What if a joint owner of my real estate becomes sick and incapacitated?
You may own your home jointly with your spouse. If your spouse becomes mentally incapacitated and does not have appropriate powers of attorney, you may not be able to sell your home without probate court approval. Upon the sale, the court may order that your spouse’s one-half share of the sale proceeds would need to be held in a conservatorship for the care of your disabled spouse. You would then only have one-half of the proceeds to use to replace your home.
Do I have to pay off a joint owner of my real estate who gets mad and will not sign off on the sale papers without receiving their share of the proceeds?
You may have put your child’s name on the deed to your home so that your child will get the home upon your death. This is usually accomplished by a deed recorded at the county Register of Deeds office. Generally, once the deed is recorded, it is considered a completed gift. Upon sale of the real estate during your lifetime, every joint owner is entitled to an undivided share of the proceeds. You cannot compel your child to sign off on the sale without giving your child his or her share of the proceeds. In addition, your child does not get a principal residence income tax exemption for their share of the sale proceeds and would usually have to pay capital gains taxes.
What if a joint owner gets greedy?
The way most joint account agreements are written at banks and other financial institutions, any joint owner has the right to withdraw any amount from that account. Any joint owner can withdraw the entire balance of the account without the permission and/or consent of the other joint owner(s). With a husband and wife, that usually isn’t a problem because most married couples would want the other to be able to withdraw any funds out of any of their joint accounts for any reason. However, if your joint owner is a child and that child is having financial difficulty or is just greedy, it is a completely different matter. It is awfully tempting for a child to see your pile of money that they can access, just sitting there not being used. They may decide to “borrow” some of your money or even clear out the accounts.
Who gets the share of a joint owner who predeceases me?
You may have put all of your children on all of your assets as joint owners, so in case of your
death your children could split up those assets. If one of your children predeceases you, their heirs
get nothing upon your death. The deceased child’s share gets divided among the remaining joint
owners because it is joint ownership with rights of survivorship. By using joint ownership you
may have disinherited your grandchildren.
What happens to my joint property if my spouse remarries and makes our property joint with their new spouse?
If your surviving spouse marries Thor or Bambi after your death and then predeceases their new and quite often younger spouse, all of your property which your spouse jointly held with Thor or Bambi goes to Thor or Bambi. Your children may be disinherited if your spouse held all of your marital property jointly with Thor or Bambi.
Joint ownership is often not the most appropriate way to hold title to assets. You can avoid these perils of joint ownership by eliminating joint ownership and using a properly drafted will or trust based estate plan with appropriate powers of attorney.
By: Matthew M. Wallace, CPS, JD
Published edited March 7, 2010 in The Times Herald newspaper, Port Huron, Michigan as: Joint owners can face perils