Are there dangers in holding property jointly?
Titling property jointly has its place, but you should speak to an estate planning attorney first. There can be hidden dangers.
Let’s take an example: You are widowed or divorced and you want your son to get your home when you pass. You record a deed transferring title into joint names with the right of survivorship. Son has just become an owner of 1/2 of “your” home.
Here are the nightmare scenarios (and these are not uncommon):
- You cannot sell it without Son’s signature, and possibly Son’s wife’s signature.
- You cannot mortgage it without Son’s signature, and possibly Son’s wife’s signature.
- Son can force a sale of the property, which means you have to leave. This is called a “Partition and Sale”.
- Son’s creditors can get it and force a sale, which means you have to leave.
- Son’s wife can claim it in a divorce. You know the divorce statistics, right?
- If you had intended that Son sell it when you die and give half of the money to your Daughter, Son is not obligated to do that.
- Your credit picture has changed — you now only own 1/2 of the house.
- Florida Department of Revenue will be entitled to collect a transfer tax as though you had sold the property to a stranger, at a selling price of one-half of any outstanding mortgage balance.
- You also may have affected your Medicaid eligibility. Medicaid looks back five years for transfers, and then has rules for disqualification if you made transfers for less than the value of the property. The information is easily available on-line to them.
- IRS will treat you as having made a gift in the amount of one-half of the value of the property.
- All joint owners are entitled to possession – yes, Son can move in. He has as much right to live there as you do.
- Gifts take the tax basis of the Giver. If property passes at the time of your death, the property gets a “Step-Up” in basis. By giving 1/2 of the property away during your life, you have lost the benefit of a full “Step-Up” in basis. That means Son will pay more in taxes when he sells the property after your death.
- If you were counting on your Son to share the property (or cash from a bank account) with his brothers and sisters, there are other problems. Upon your death this property becomes the full property of your son. While he may have the moral obligation to make distributions to his brothers and sisters he are under no legal obligation to do so. What is worse, though, is that any distributions to his brothers and sisters will be made voluntarily and therefore a gift. Gifts in excess of $13,000 a year are subject to gift taxes. Even if your son would still be under his lifetime gifting exemption, these gifts are using it up – and since gifts made which use up your lifetime gifting exemption get charged against your Estate Tax Exemption, he is actually using that up as well.
By this simple act of using joint tenancy, you have lost control of this asset, and when you lose control of your assets, you have lost control of your life, and how and where you live. That can mean you get moved to a nursing home when you had intended to live in your home forever.
Many of the same problems exist if you transfer the property subject to a “Life Estate”.
There are other ways of accomplishing your goal without any of those problems —
- For example, for real estate, a “Lady Bird” Deed,
- For bank and brokerage accounts – Transfer On Death (TOD) Account,
- For bank accounts – signature authority-only accounts.
Contact West Palm Beach Estate Planning Attorney Gregory C. Picken to discuss joint property issues or any other estate planning, probate, trust or guardianship issue you may be facing.