Brown & Associates - Attorneys & Counselors at Law, P.L.L.C.

JOINT TENANCY? IS IT RIGHT – OR WRONG – FOR YOU?

By: Jerry Shiles

Usually, when a client comes to our office for assistance with estate planning, one of the first questions we ask is whether the client owns property and, if so, whether the property is owned individually, as tenants in common, or in joint tenancy. If the client owns property with someone else, often he or she isn’t sure how to answer our question.

Joint Tenancy–What Is It?

You can own property with one or more other people as either Tenants in Common or as Joint Tenants. Owning property in joint tenancy differs significantly from owning that same property as a tenant in common. The most important difference is that when one of the joint tenants dies, his or her interest automatically passes to the surviving joint tenant, not to the named beneficiaries of the deceased party

Let me explain. If you are one of three children and your parents leave the three of you the family farm "in equal shares," each of you will own a one-third interest in the farm and can do with it as you please. You can sell your interest or you can leave it to your children in your Will or Trust.

If, on the other hand, your parents leave the farm to the three of you as "Jim Jones, Tom Jones, and Mary Jones, joint tenants with right of survivorship," at your death, your 1/3-interest will pass to your surviving siblings and not to the beneficiaries designated in your Will.

Many people favor joint tenancies exactly because of the survivorship rule. If you and your wife buy a home together, you want her to receive the property at your death. The transfer occurs automatically at your death, so you don’t have to worry if your Will is outdated or about what the rules of intestacy say if you die without a Will or other testamentary instrument.

Joint Tenancy is Not a Will Substitute

Many people, especially young couples, look upon joint tenancy as another form of Will or estate planning. This can be a problem if you own some of your property in joint tenancy, but other property individually or as tenants in common. Because a joint tenancy interest is created by an instrument, such as a deed, the instrument only controls the disposition of the property described in the instrument itself. A Will or trust, on the other hand, disposes of all your property.

In an earlier column, I mentioned someone who had created separate joint tenancies with each of her children. This way, she figured she didn’t need to worry about a Will and everyone would be taken care of equally. Unfortunately, the value of some joint tenancy assets grew in value while others shrank. After several years, the values of the joint tenancy properties were no longer equal and she could not equalize them because some of her children refused to go along.

In her case, instead of using joint tenancies, she could have transferred all of her property into a trust and named the children as equal beneficiaries. This way, each would have received the same value at her death.

Transferring Joint Tenancy Property

Besides the risk of having the various joint accounts increase or decrease in value at different rates, the above example points out another problem of making your children or others joint tenants on your property or accounts. In order to convey title to this joint tenancy property, all joint tenants must join in the transfer. If a joint tenant objects, the transfer cannot be completed.

What happens if you and your husband are joint tenants and he suddenly becomes disabled and can’t act? With a power of attorney with broad powers, you can sign the deed or other transfer documents on his behalf. If you don’t have one, however, you are stymied until you can obtain a court order appointing you as his guardian with authority to act on behalf of his property.

This doesn’t mean one joint tenant cannot convey his interest in property to the other joint tenant or to a third party purchaser, but the purchaser only receives an "undivided interest" in the property. If you and your brother own a piece of land as joint tenants, each of you own an undivided one-half interest. Most purchasers won’t want to buy an undivided interest because they can’t do anything with the property unless the other joint tenant consents.

You may be able to partition joint tenancy property and overcome some of these problems, but the procedure is neither quick nor inexpensive. If the joint tenancy property is a homestead owned by a husband and wife, both spouses must sign any conveyance documents or the transfer will be ineffective.

Bank Accounts vs. Investment Accounts

Even among different types of joint tenancy property, different rules apply. You can open a joint checking account with your wife and either of you can write checks on the account without the knowledge or consent of the other. If, though, you purchase stocks or bonds as joint tenants, neither of you can sell them or give them away without the consent of the other.

Plan and fund your estate

More than once, a client has come to me complaining he is the beneficiaries of an estate, but hasn’t received his inheritance. When I look at the Will or trust, it is plain on its face and clearly identifies the beneficiary by name. Once we start digging, though, we the Will or trust is worthless because the decedent’s property was owned in joint tenancy with someone else. We have no way of knowing why the joint tenancy ownership wasn’t changed to pass in accordance with the testamentary provisions. All we know is the beneficiary receives nothing. Maybe this was the intent of the decedent, but it is highly unlikely. Most people do not go to the trouble of executing a Will or trust unless they intend it to be effective.

Next week I’ll look at some other issues involved in owning property as a joint tenant.

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