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The Perils of Joint Tenancy:  The Poor Man’s Estate Plan

My regular readers already know that I’m constantly beating the drum to convince families that an estate plan is a necessity not just something that would be nice to have. I get all types of responses but one of the most common is “I’m just gonna add my daughter/son to my bank account or my deed.” This my friends is a really poor choice for estate planning. By adding loved ones to your accounts or title, you create what is called Joint Tenancy and while it sounds like a quick and inexpensive fix, it actually has the potential to create a lot of problems.

What is Joint Tenancy?

Adding someone to title or accounts creates a “joint tenancy with rights of survivorship.” It gives the person named to the account/title equal ownership in the property and upon death, the account/title automatically passes to the other named joint tenant. Sounds simple enough and you may think this is a nice and easy solution. THINK AGAIN!

The Trouble with Joint Tenancy

Joint Tenancy creates a number of potential problems. A short summary of a few is listed below.

  • It doesn’t empower of loved ones to handle your affairs should you become mentally or physically disabled. You need a durable power of attorney and health care directive to make sure a trusted loved one can step up and handle your affairs if you can’t.
  • It doesn’t eliminate the need for probate court. Any property that is not in the joint tenancy cannot be passed on without involving the probate court.
  • You can effectively disinherit anyone you would like to leave a gift for if they are not named as joint tenants. For example, if you add your son/daughter on a bank account but you also want their sibling(s) to receive some of the proceeds, the sibling(s) is automatically disinherited. Upon your death, title completely passes to your named joint tenant.  Your joint tenant is not legally obligated to make a gift to your other children or loved ones.   If your other heirs decide to fight to receive their inheritance, then they will be tied up a costly and long probate court fight.
  • If your loved one is married, the bank account or property becomes community property in the marriage. In the event of a divorce or death, their former spouse has a claim against the bank account or title of the person you have added to the bank account or property is entitled to half of the value. That’s right your in-law could end up owning one-half of YOUR stuff!
  • Likewise, if the loved one you’ve added to your bank accounts or property title is involved in a lawsuit or bankruptcy, a claim can be entered against the account or property title.

There are Few Shortcuts in Life

Sometimes a perceived short-cut is just a gateway to many other problems. Such is the case with Joint Tenancy. You need a complete plan that includes a will and/or living trust, power of attorney, and health care directive.  Having a will or living trust is important for every family, regardless of how much money they have. It provides some peace of mind and certainty about how things will be handled if you pass away or suffer some serious illness or disability.

Here are some easy things you can do to get yourself started on putting your financial affairs in order.

  1. Make an inventory of your assets (bank accounts, investments, property, jewelry art, etc.). You can use this handy dandy Net Worth Calculator to get yourself started.
  2. Review whom you’ve named as beneficiaries of your life insurance, retirement funds or investment accounts.
  3. Download my FREE e-Book “10 Steps to Getting Started on Your Estate Plan” to help get your thought and wishes organized.

And last but not certainly not least, contact me for a FREE Estate Planning assessment. I can be reached by email at gmsmith@jamiilaw.com or by phone at 312.868.0781.

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