Joint ownership – whether of property or of bank and investment accounts – is convenient.  And yes, joint ownership of assets is one way to avoid probate.  But as we often find it necessary to remind our clients, it’s important to understand the consequences of joint ownership.

The authors of the Indiana Laws of Aging Handbook agree. They remind readers that there may be some unintended consequences when property is held jointly:

  • There may be tax consequences in any transfer of change of ownership in real estate.
  • Any party to a joint account may withdraw all or part of the funds without the consent of the other.
  • You cannot assume that money left in a joint account will be divided according to the provisions in your will.
  • If, after your death, your bills and expenses cannot be satisfied by other assets in your estate, your joint bank accounts can be used to cover allowable expenses and taxes.

In Your Living Trust & Estate Plan, Harvey J. Platt points out three more potential hazards of joint ownership:

  • The creation of a joint interest may be subject to gift taxes.
  • If joint owners die simultaneously, assets could pass to those not intended (absent a valid will or living trust, the nearest blood relatives of each joint owners would each receive half the value of the account).
  • From an estate tax point of view, there is a very distinct potential downside to joint ownership of property – the “stepped-up value” factor of the property is lost. What does that mean? When an individual property owner dies, the income tax basis value of the property for estate tax purposes is increased to the fair market value at the time of the owner’s death (or in certain cases, the value six months after death). That “step-up” can reduce or even eliminate capital gains tax on the property.

Joint ownership of property has its advantages, to be sure, including convenience and probate avoidance. It also, as shown here, carries with it distinct downsides. At Rebecca W. Geyer & Associates, our goal is to tailor each estate plan to take advantage of joint ownership while stepping around the pitfalls!.

– by Rebecca W. Geyer