In an earlier post, we discussed why your beneficiaries would think Avoiding Probate is an excellent idea.
We also discussed how certain Assets Not Subject to Probate can avoid the Probate process, including those assets that qualify for the California Small Estate Affidavit procedure, or Assets that Pass by Operation of Contract.
Now, we will examine the concept of Joint Tenancy, and whether it makes sense to use Joint Tenancy as a means to Avoid Probate.
Joint Tenancy, or Joint Tenancy with Right of Survivorship, is a legal designation that allows certain assets to go to the surviving Joint Tenant without being subject to Probate.
People use Joint Tenancy because it is easy to use, the financial account or real property deed will need to reflect that there is joint ownership with right of survivorship.
However, there are several key Disadvantages of Joint Tenancy:
- Both Joint Tenants are co-equal Owners, there can be no disproportional ownership (i.e. 1/3 owned by Person A, and 2/3 by Person B)
- Because all Joint Tenants legally own all of the property, the entire property is subject to the Creditors of any Joint Tenant
- Assets owned in Joint Tenancy do not get a full Step-up-in-Basis (for capital gains tax purposes) at the death of a Joint Tenant
- Joint Tenants may only leave their interest in the Property to the surviving Joint Tenant – they may not leave it to their children, their Trust or Estate or any non-Joint Tenant
- Joint Tenancy ends after the first transfer of the property. If the other Joint Tenant has died, or dies without naming a new Joint Tenant, the property may be subject to Probate
- If all Joint Tenants die at the same time, the asset may be subject to Probate
We believe the Living Trust remains the best option for helping your family avoid Probate.
For many families, the Disadvantages of Joint Tenancy outweigh the benefits, especially when a Living Trust can accomplish the same objectives without the downside.