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Depending on the circumstances, trusts, partnerships, corporations, limited liability companies and community property can all be used to better accomplish the same goals and which allow better tax planning, control of your ownership, and resolution of disputes. Typically, joint tenants are husband and wife, or couples in long-term relationships. 12 Subjects You Need to Address When Planning for Your Senior Years, Discretionary Trusts – How to Protect Your Beneficiaries From Bad Decisions and Outside Influences, How a Community Property Trust Could Save You From Heavy Taxation Down the Road, 3 Celebrity Probate Disasters and Tragic Lessons. If either owner fails to pay income taxes, the IRS can place a tax lien on the property. Transfer Immediate and Automatic Upon Death. Ease. If either joint owner becomes physically or mentally incapacitated and can no longer sign his name, the probate court must give its approval before any jointly owned property can be sold or refinanced — even if the co-owner is the spouse. After hundreds of years of creating such title documents, the professionals in the field feel comfortable with that method. The dangers of joint tenancy include the following: Danger #1:  Only delays probate. Serious tax disadvantages may result from the use of a joint tenancy. When you place a non-spouse on your property as a joint tenant, you make an immediate … With joint tenancy, as soon as both you and your spouse pass away, your children receive the property outright, creating the possibility a child could lose their inheritance in the event of a lawsuit against that child. As far as disadvantages go, a joint tenancy may prove to be a costly mistake in case of broken relationships, both professional and personal, since joint tenancy does not permit one to sell or encumber one’s share of the asset without prior permission from the other tenants. Apparent Simplicity. The reader is invited to first review the article Real Estate Ownership and Transactions in the United States which discusses generally the methods of owning and buying and selling real estate in this country. All that need be done is to place on the title deed, “X and Y, as joint tenants” and the property is effectively owned as joint tenancy. Many couples have joint bank accounts and jointly-held primary residence. After community property, JOINT TENANCY is probably the most commonly used method…and the most abused. When the wife dies, the property goes to her children, leaving nothing for the husband’s children. But this means that your plans may be suddenly destroyed at the will (or whim) of the other joint tenants at any time. First the co ownership must be equal, e.g. Other co-ownership alternatives to be considered include tenants in common and revocable living trusts. Similarly, joint … Likewise, the beneficiary could not sell or mortgage the property without the agreement of the life tenant while the life tenant is still alive. If a person inherits a home through a will or living trust, the heir can sell the property without paying any income tax. "As Is" in a Real Estate Contract: What Does It Really Mean? Find helpful legal articles & summaries on key areas of the law! We’ve all be told that joint tenancy is a simple and inexpensive way to avoid probate, and this is sometimes true. Before the advent of revocable living trusts (See our article on Wills and Trusts) joint tenancy seemed an excellent method of avoiding what often amounted to thousands of dollars in probate fees paid to executors and attorneys. Danger #5:  Loss of income tax benefits. Unexpected Rigidity in Ownership. Joint tenancy property ownership has advantages, including survivorship and probate court avoidance, as well as disadvantages such as termination without the other joint tenant`s … First things first: what’s the difference between owning a property as joint tenants and owning it as tenants in common? By use of revocable trusts, the corporate structure, family partnerships and other easily drafted documents, almost all the benefit of avoiding probate can be achieved for the same property without the disadvantages of joint tenancy listed above. The initial cost is the “basis” of the property and one pays taxes on the difference between sales price and basis. The document must be recorded. If one person in a joint tenan… Lack of Benefit. Put simply, both legal and tax issues often arise to the shock and, at times, dismay, of those who “took the easy way” and decided to keep jointly owned property as joint tenants. However, unless you specify otherwise when you are purchasing the property, the law assumes that your purchase is a joint tenancy. What Tax Consequences Could Result From the Creation of a Joint Tenancy? If there is conflict between the joint tenants at some point in the relationship, a JTWROS can make it difficult to move forward because agreement must be reached by all involved parties to sell the property or take a loan out on it. 2. There is no need to probate the estate or perform other court hearings to achieve the transfer to the other joint tenants upon death. All Rights Reserved. However, there are also disadvantages to hold property in joint tenancy. It must go to the surviving spouse. One could easily predict what would occur in the future should legal disputes arise. It’s a popular option for partners and spouses. You'd need to get one joint mortgage to cover the amount you're borrowing to buy the property. This causes significant problems in litigation, as discussed further below. This can be a costly mistake. If a married couple wanted to include their 18 year old child in the joint tenancy of their house, each person would own an equal share of one third. When either joint tenant dies, the survivor — usually a spouse or child — immediately becomes the owner of the entire property. Since many couples now own property as community property or use revocable trusts, both of which eliminate all or most of the attorney fees, this justification has been largely eliminated but remarkably few people realize it. So joint tenancy doesn’t avoid probate; it simply delays it. Joint tenancy is the equal ownership of a house by every party involved. 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