What is joint tenancy?
Joint tenancy is a way of owning real or personal property by two or more individuals. When property is owned in joint tenancy, there are two or more owners that own an undivided share in the same interest, versus owning property as tenants in common, in which each owner owns an individual fractional share.
In order to own property in joint tenancy, the deed or title must have the words “as joint tenants” or “in joint tenancy,” otherwise it will be assumed that the co-owners own the property as tenants in common. In a joint tenancy situation, when one of the joint tenants die, his or her interest automatically passes to the surviving joint tenant(s), allowing the surviving joint tenant(s) to avoid probate.
How can joint tenancy be beneficial?
Owning property in joint tenancy allows the surviving tenants to avoid probate, thereby eliminating the Personal Representative, attorney, and court fees that are associated with a probate. In addition, for Medicaid recipients, if property is owned in joint tenancy it never becomes part of the recipient’s probate estate and is therefore not subject to estate recovery claims by the Colorado Department of Health Care Policy and Financing.
What are disadvantages of owning property in joint tenancy?
Property owned in joint tenancy is subject to the liabilities and creditors of all the joint tenants. For example, if one of the joint tenants is held liable in a civil law suit, the plaintiff or creditor may force the sale of the entire property. Similarly, if a bank account is owned in joint tenancy, any of the joint tenants has the right to withdrawal the entire amount at any time.
As discussed in more detail below, tilting or transferring property into joint tenancy or making major improvements to property already held in joint tenancy, may cause gift tax liability (unless the joint tenants are married). In addition, owning property in joint tenancy may cause unintended consequences, such as constructively disinheriting a child or loved one because provisions were made for them in the Will, but the joint tenancy property is not subject to the terms of the Will. Finally, a property owned in joint tenancy may be subject to the claims of a surviving spouse and children when a decedent’s probate estate assets are insufficient to pay such claims.
What is the process for clearing up title when on joint tenant dies?
The most common assets owned in join tenancy are real property and bank accounts. In order to transfer the deceased joint tenant’s interest to the surviving joint tenant(s), all that is usually required is the recording of the death certificate in the county where the property is owned or by presenting an original death certificate to the bank.
How are taxes affected by joint tenancy?
Estate tax – Owning property in joint tenancy does not avoid estate taxes, but simply allows for the passing of title to the surviving joint tenants without have to go through the probate process. If the join tenants are not spouses, the property value must be included in the descent’s estate value, which depending on the total value, may be subject to estate tax liability.
Income tax – All joint tenants are ordinarily expected to show his share of any income derived from a property owned in joint tenancy and declare his or her respective share on his and her income tax return and to prorate taxes and other deductions.
Gift tax – Depending on who the joint tenants are, there may be gift tax implications for transferring or tilting property in joint tenancy. A person may make up to $13,000 per person in 2010, so if the transfer is being made to someone other than a person’s souse, it will be subject to gift tax if the value of the joint interest is more than $13,000.
Does a Will affect property held in joint tenancy?
There are certain types of assets that are not governed or distrusted per the terms of a Will. Only property that was owned by you in your individual name (and that does not have a beneficiary designation) is controlled by the Will. So, because joint tenancy property passes immediately to the surviving joint tenants and does not go through the probate process, it is not controlled by the terms of the Will. Therefore, it is important to understand how your property is titled and how the different ownership types work in conjunction with your Will.
Do you need a Will if everything you own is in joint tenancy?
While assets owned in joint tenancy are not subject ot the instructions in a Will and do not have to go through the probate process, having a Will as a safety net is a prudent decision. Some property cannot be owned in joint tenancy, and if the joint tenants die at the same time, the property will then be subject to the joint tenants’ Wills or the intestacy laws.
Can joint tenancy property be converted to individually owned property?
Any of the joint tenants can destroy or sever the joint tenancy nature of the ownership by mutually agreeing to do so or by convening the property to a third party. However, it is important to note that if there are only two joint tenants and one relinquishes their right, there may be gift tax implications.
Changes may have occurred in the law since the time of publication. Before relying on this information, consult an attorney about your individual case.