If your joint tenant is your wife, she won’t have to pay any federal estate tax on the property at your death. The situation is quite different, however, if your joint owner is not your spouse.

Example with Nonspousal Joint Tenant

Let’s consider the following example: you provide the entire purchase price for some property and then you die. In this situation, the entire value of the property will be included in your estate.

Now let’s say you contributed the entire purchase price of the property and your joint owner, who did not contribute one dime to the purchase price, dies first. This time, none of the jointly owned property will be included in his estate or taxed at his death.

What happens if each of you contribute one-half of the purchase price for the property? In this instance, the result is as you would have anticipated–one-half of the value of the property will be included in the estate of the first to die.

What if neither of you paid anything for the property, such as with inherited property? As with the latter example above, at your death one-half of the property’s value will be included in your estate.

In each of these examples, if the surviving joint tenant should die while still owning the property, its full value will be included in his or her estate, as well. This points out one of the problems with joint tenancy property. All or part of the property’s value may have to be reported in the estate of the first to die. Then the full value of the property will have to be reported again at the death of the surviving joint tenant.

The good news is that with proper planning, a Will or trust can avoid this specter of multiple taxation for the same property and help you sleep at night.

Well, first of all you cannot transfer or sell joint tenancy property without the consent of the other joint tenants. This is also true for making many other decisions concerning the property. What if you want to make major improvements to the property and your joint tenant disagrees? What if you want to sell it and your joint tenant doesn’t agree? What if your joint tenant is incompetent and can’t agree–and he hasn’t had a guardian appointed yet who can act on his behalf? What happens if you named one of your children as your joint tenant solely to avoid probate and he then predeceases you? What is his wife files for divorce and claims an interest in the property? What if your joint tenant files for bankruptcy or is sued in civil court?

I haven’t given you any answers to these scenarios. What you need to know is that it can be expensive and time-consuming to force through actions or to untangle these joint tenancies.

Well, at least joint tenancies avoid probate.

This is a common belief among non-lawyers, but it may or may not be true. When a joint tenant dies, the property doesn’t just magically pass to the surviving joint tenant. The deceased joint tenant’s interest in the property must be terminated in some way in order to give clear title to the surviving joint tenant.

There are different ways of doing this. One option is to file with the County Clerk an affidavit of surviving joint tenant which is accompanied by a certified copy of the death certificate. If the joint tenants weren’t married, a final tax release will have to be filed, as well.

If the surviving tenant is not the spouse, you can always file a court proceeding to terminate the joint tenancy and clear title. This doesn’t avoid the court process altogether, but at least it is simpler and less costly than probating the entire estate.

Finally, if there are other assets owned by the decedent, probate may still be necessary and in that instance the joint tenancy can be severed as part of the probate proceedings.

As I often say–and I mean it–each case has to be looked at on its own merits. For small estates, especially ones where everything passes to the surviving spouse, joint tenancy can probably save the expense of probating the estate of the first to die. With larger estates, however, the adverse consequences that can flow from owning property in joint tenancy may outweigh any savings in time or money from avoiding probate.

Joint tenancy is often best for young couples who haven’t acquired much yet and don’t want to be bothered with establishing wills or administering trusts. This is especially true if the property they acquire will not be held in trust. Each situation is different, however, and there aren’t any general rules. Only an attorney can advise you on what is appropriate in your situation.

Joint tenancies can prove useful or burdensome, cost effective or inefficient, helpful or harmful. Just like any tool or weapon, whether it is good or bad will depend upon how it is used by the operator. Before you put all your eggs in the joint tenancy basket, check with an estate planning professional who can advise you whether it should be your "weapon of choice."