We’ve written about this issue before. Don’t put your property in joint tenancy with your child (or children) as a means of avoiding probate. It’s a mistake. Talk to a lawyer.
Why don’t people believe us?
Though we write impassioned pieces about the problems with joint tenancy, a funny thing happens when we look at the statistics. Most of the readers got to our articles by searching for information about how to do exactly what we’re telling them not to do. Maybe we should try a different approach. Don’t use joint tenancy.
That’s not to say putting your daughter’s (or son’s) name on your assets is never a good idea. There are some circumstances when it’s appropriate to put property in joint tenancy with right of survivorship. Those circumstances are rarer than you think, however.
We’ve even taken to the airwaves to warn against the indiscriminate use of joint tenancy. It doesn’t seem to work, if we can take anything from the questions we get asked.
What’s wrong with joint tenancy?
There are several problems with joint tenancy, especially when you use the titling to avoid appropriate estate planning. Among the problems:
- You might not always get along. When you disagree about cashing in the account, or selling the house, or fixing it up — are you ready to let your joint tenant decide, or veto your decision?
- Joint tenancy is not a way to give a future interest to your child or other recipient. They get their interest right now. That means that you could subject your assets to their creditors, to their messy divorce, to their future problems — all while you are still alive.
- Setting up a joint tenancy is usually irrevocable. That means you can’t change your mind later. You’ll need your joint tenant’s signature to make any changes.
- You might lose favorable property tax treatment. Your children (including the joint tenant) might lose the favorable income tax treatment of inherited property.
- Do you have several children, and want to put one child’s name on your accounts? She’s trustworthy, right? She’ll understand that she is supposed to share with your other children. What makes you think she’ll do that, exactly? Why not do what you really mean to do, and leave the account or asset to the children equally (or whatever you actually wish to do)?
- If you put an asset in joint tenancy with the daughter you trust, and she does exactly what she’s supposed to, she will be making a gift. That could create problems with her later eligibility for public benefits, or even (though unlikely) subject her to a gift tax liability.
- What will your family do when your will says something different from your joint tenancy designation? Can they figure out what you actually intend, even if everyone does agree to act honorably?
We could go on. But here’s the real issue: why not incur the very small cost to get good legal advice and make sure you’ve done this right? Joint tenancy is not a good substitute for real planning.
But mostly it works out just fine, right?
Well, we do have plenty of illustrations of times when it didn’t. Consider the Georgia case we ran across this week. Jewell Penland had purchased US Savings Bonds, titling each one in joint tenancy with one of her children or her grandson. When she decided she wanted to get the bonds back into her name, she told each of them to turn over the bonds with their names on them. Her grandson said he would, but then he didn’t.
Ms. Penland changed her will and her living trust, trying to change the grandson’s share. Then she died. Her grandson promptly cashed in $227,000 of bonds she had decided he shouldn’t have.
Apparently Ms. Penland had originally decided to leave those bonds to her grandson because she didn’t trust his mother (her daughter) to handle money. She seems to have changed her mind in the months before her death, but she could not effect the change unless her grandson cooperated.
Actually, she did make the change. But her son had to sue the grandson to get the bonds back. He lost that lawsuit in the probate court. The Georgia Court of Appeals reversed and ordered the probate court to reconsider. Ray v. Hadaway, February 22, 2018.
And then there’s Bankruptcy Court
Or consider the Hawai’i Bankruptcy Court proceeding we saw last week. In 2007, California residents Philip and Barbara Henshaw bought a $680,000 house in Hawai’i for their son and daughter-in-law to live in. The younger couple contributed about $7,000 to the purchase price. The title was in joint tenancy “to simplify their estate planning.”
When the younger Henshaws began to have financial problems in 2009, they deeded their joint tenancy interest back to his parents. They then filed bankruptcy in 2011. The bankruptcy trustee promptly asserted that he could force the sale of the property to satisfy the children’s debts.
Now, almost seven years later, the Hawai’i Bankruptcy Court has ruled that the property can be sold and half of the proceeds used to pay the younger Henshaws’ debts. Earlier this month, the Federal District Court upheld that ruling. In re Henshaw and Henshaw, February 8, 2018.
The takeaway message
Joint tenancy might make sense when used by married couples who jointly and equally own property. There might be some other circumstances when it makes sense, as well. It is no, however, a reasonable substitute for thoughtful estate planning.
Should you put your daughter’s name on your account? Is that a good way to take care of things “in case something happens”? No.