The Risks of Joint Tenancy
So, you and your wife or husband have survived the 2006 – 2011 real estate storm. You have either reinvested or held onto your home and now you can relax a bit knowing that your family home will be protected through a joint tenancy when you are gone. But is that really true?
If you are not aware, a joint tenancy is when you and another person (your loved ones?) have an interest in a piece of real estate, and when one person dies, their respective interest is passed on the survivors. You may be in this situation right now, and not know it. If you are not sure, check into it; knowing is worth the trouble.
As a joint tenant, you may rest assured knowing that when you pass, your interest in the home will go to your joint tenant; again, probably a loved one, and your home will avoid probate. But did you know that if you do not have an estate plan in place, preferably a trust, then your home may still enter probate and its future could be decided by a judge who is far too busy to give your estate the attention it deserves.
See, a joint tenancy only delays probate. Once you and your partner are gone, you still have the issue of where your home is going to go. Let’s say you have a mixed family; your wife or husband have children who are not legally yours. Sure, you want to provide for everyone as best you can, but there is a chance that your children would not inherit the property.
In addition, there are tax consequences to a non-spouse who receives the partial interest upon passing. Let’s say you share your house in joint tenancy with your son. Of course, you have only the best intentions in mind, but did you know that when you retitled the portion titled to your son it can be considered a taxable gift?
One way of avoiding these pitfalls is through a trust. A trust will help ensure that your home goes where you want it to go, well after you are gone and with little tax liability. Through a trust, you are able to make the decisions on where your home goes, and not a court and not the I.R.S.