What Is Joint Tenancy and When Should I Use It?

Transcript

Good morning. My name is Rick Gans. I’m an ACTEC Fellow, and I’m here this morning with Tami Conetta, another ACTEC Fellow from Sarasota, Florida and our topic today is joint tenancy.

So Tami, what is joint tenancy?

Tami Conetta: So joint tenancy, Rick, is when two or more people own one asset altogether. And so it can either be with right of survivorship so that each one has their share and at their death, their share passes to the survivors, or it can be a tenancy in common where each one just owns their separate share and manages that as their own asset.

Rick Gans: So my clients will bring in statements for me to look at and I see the letters JTWROS on that and what does that stand for?

Tami Conetta: So that’s telling you that that account is Joint Tenant With Right Of Survivorship (JTWROS), which means, as I said if one of them dies then the other one becomes the sole owner of that account.

Rick Gans: Okay, what advantages are there to holding assets in joint tenancy?

Tami Conetta: So there are two primary advantages. The first one is that during their lifetime, both of the joint tenants have access to that asset. So, in your example with the account, either one of the owners could come in and make distributions or contributions to the account. And the second advantage is at the time of death, it avoids probate because that is the structure of joint ownership. So, instead of having to go through the probate court or do some other extensive transfer process they just walk in with a death certificate and they become the owner. It’s very simple.

Rick Gans: So during the lifetime of both of the owners can one of the owners take out all the money or just half?

Tami Conetta: That’s one of the risks. So with an account, like you mentioned, anyone, either one of the owners, could come in and take it out. With real estate and joint ownership, it’s a little bit different. The state laws may control how much, but one of the owners could actually terminate the tenancy by trying to deed out their half.

Rick Gans: Are there any other disadvantages?

Tami Conetta: Well, a lot of people don’t consider the tax ramifications of joint ownership, and so it is possible if I’m putting somebody who is not my spouse on a joint account with me, that I made a taxable gift because to your point they can go in and they can take it out. So, their immediate access to those funds makes it a taxable gift and so they don’t think about the gift tax consequences. There also could be some concerns about the creditors of that joint owner may be getting access to those assets as well.

Rick Gans: You mentioned that you could have real estate owned as joint tenancy, so suppose that my client and my client’s son are on the deed, and that’s all that’s on the deed – client and client’s son – is that automatically a joint tenancy, or does that vary from state to state and deed from deed?

Tami Conetta: Well I think in most states, it is a joint tenancy what’s not clear is whether it is with or without rights of survivorship and so that should be clarified.

Rick Gans: Okay, so if two people are on the deed it’s wise to seek advice to seek and figure out just exactly what you have.

Tami Conetta: Absolutely.

Rick Gans: Okay, now do you need a will if you have all of your assets jointly?

Tami Conetta: Definitely, you still need to have a will because, for example, if you have two joint owners and you are their surviving joint owner then that asset is in your individual name and you need to have the will to be able to transfer that at your death.

Rick Gans: Okay, what about a power of attorney?

Tami Conetta: Power of attorney is equally important so that if you become incapacitated during your lifetime, your agent that you name under your power of attorney will be able to work with your joint owner and if you’re the survivor, as the sole owner, to be able to either sell that asset or have access to it.

Rick Gans: Okay, so every now and again, it will happen that my client will come in, and she will say well, “I have set up a couple of joint accounts with my one daughter, and I have two other children.” Are there any risks to doing that? Is that a good idea, or a bad idea?

Tami Conetta: So usually clients will say that because they want one child to be able to have immediate access to the funds in the event of their death but what they don’t realize is that it could be completely contrary to their regular estate plan. So if their estate plan is to give everything equally to the three children and they’ve named just one as the joint owner, that one child could take those assets and not share them with the others.

Rick Gans: So that joint nature of the account sort of trumps what’s in the will. So that client’s child would get that asset to the exclusion of the other two even if the will says to divide everything in three?

Tami Conetta: Absolutely, because that asset does not go through probate, so the will does not control it.

Rick Gans: Okay, well, thank you, Tami. This has been very informative.

Tami Conetta: You’re welcome, thank you.