In the process of buying an automobile, Denise thought it would be a good idea to title the car in her daughter Ann’s name along with her own.  That way, Mom thought, if something happened to her, Ann could just take the car and use it without any legal “hassles”. 
Just how good an idea was that?  “Joint ownership of property should not be created or used as a substitute for a will or living trust,” attorney Harvey J. Platt reminds readers in Your Living Trust & Estate Plan. Why not? Well, for one thing, if joint property owners were to die simultaneously and there is no will or living trust, the assets would pass to those that perhaps weren’t intended (the nearest blood relatives of each joint owner).

At Rebecca W. Geyer and Associates, we agree that, while joint asset ownership may help assets avoid probate, it is no substitute for comprehensive estate planning. Even if the owners don’t die simultaneously, there are a number of reasons “blanket” joint ownership of all assets can create more problems than it solves:

  •  The creation of a joint interest may cause there to be a gift tax.  When the money to buy the assets comes from just one of the owners, the other owner is receiving a gift.  Yes, in 2015, gifts of up to $14,000 per recipient escape that tax. (If the car Denise had bought had a market value of less than $28,000 – well, no problem.)
  • Creating a joint interest can cause the “step-up” in basis to be lost. Suppose the property put into joint ownership had been a building, a farm, or stock that Denise had owned for years, rather than a car she was buying. Over the years Mom owned it, let’s imagine that property had greatly appreciated in value. At the time Denise puts the property in joint name with Ann, Ann’s cost basis becomes half that of Denise’s. When, sometime in the future, Denise dies, there will not be a step-up in basis on the half interest Ann receives from Denise.  Should Ann later sell the asset, she will pay capital gains tax on the difference between the sales price and Denise’s basis in the property on Denise’s half interest.

Then is joint ownership of property necessarily a “bad idea”? Not at all.  At Geyer Law, our focus is on understanding the particulars of your situation so that we can design an estate plan that accomplishes your objectives. With proper planning, your assets can pass to your loved ones in a way that is quick, private, and which preserves all the appropriate tax advantages.

Joint ownership may, in fact, be part of your estate planning, but it certainly isn’t an “instead of” for comprehensive planning!