Joint Ownership Fraught With Peril

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. 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.

What if a joint owner on my bank account or real estate gets sued?

Most joint bank accounts 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 owner’s creditors. If your joint owner gets sued, a judgment creditor may garnish your account since your joint owner also owns the account. Similarly with real estate, your joint owner’s creditor with a tax lien or judgment lien may place this lien on your real estate in order to secure payment of your joint owner’s debts.

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. The court may then also could hold your spouse’s share of the sale proceeds 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 the sale and may have to pay capital gains taxes.

Who gets the share of a joint owner who predeceases me?

You may have put all of your children on all 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.

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 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.

By: Matthew M. Wallace CPA, JD

Published edited September 7, 2008 in The Times Herald newspaper, Port Huron, Michigan as: Assets may be in jeopardy with joint ownership

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