When people find out about probate, some do more than cringe; they decide to sign their children on as joint owners to their desired property. Sharing property as such creates a right of survivorship in which if person A dies, person B receives the property. This is called joint tenancy, and it can create serious problems down the road. A much better solution to avoid probate is to create a trust or a life estate deed. Most people do not have to worry about paying any estate tax–in fact only 0.2 percent of people will pay any estate tax at all according to Time–and even if you do expect to pay estate tax, a joint tenancy is still a bad idea. Consider speaking with an Anne Arundel county estate planning attorney about your options for creating a trust that will avoid a large amount of federal taxation, such as a generation skipping trust or irrevocable trust.
The Many Issues With Joint Tenancy
- Losing Your Property in a Lawsuit – The more people that own something, the more chances there are that it can be taken away in a lawsuit. If two people, a mother and son for example, own a house together, there is risk involved. If the son hits a pedestrian with his car while texting on his cell phone and kills the pedestrian, the pedestrian’s family can sue the son, obtain a judgment against him and place a lien on the property. The mother’s home, and equity in that home, could be lost. Another example is if the son files for bankruptcy or is involved in a divorce. The bankruptcy court or soon to be ex-spouse can make a claim against the property. The more people that jointly own your property, the higher the chances are that a lawsuit caused by your child could wipe that property away.
- Creating Problems With Other Beneficiaries – If your daughter owns your property jointly, she does not have to honor the property distribution that is outlined in your will. This means that she can simply take everything for herself and exclude other beneficiaries, or choose herself who gets what.
- Step-Up Basis – Jointly owned property also loses the tax benefit of a stepped-up basis. Basis is the market value at the time of conversion. For an example, if you purchased a home in 1970 for $40,000, and it is valued at $400,000 at the time of your death, the basis would still be $40,000 for your child if you added your child as a joint owner of the property during your life. That means that the capital gains tax would be quite large. All in all, jointly titled property is a poor decision in most instances in regards to proper estate planning and avoiding probate.
Call Maryland Probate Attorney Tara K. Frame Today
If you are afraid of the probate process, let an experienced probate and estate administration attorney help you; do not fall into the trap of joint property. Joint property avoids probate, but creates so many other problems that it is simply not worth it. The Maryland attorneys at Frame & Frame can help you create a will, help you understand probate, assist you and your executor during the probate process, or help you create a living trust. Call today for help.