By Brittany Littleton
There are many ways to transfer
your assets to those you love. Planning
for convenience, it is common for
seniors to add a family member as a
joint owner on financial accounts and
property deeds. The appeal of joint
ownership is simplicity; when one
owner dies, the survivor automatically
owns the property and avoids probate. But is it really that
easy? Before you decide joint ownership is the best way
to pass on assets to your heirs, consider these common
4 The co-owner’s debts become your problem. While
your intent may have been a convenient transfer upon
your death, a creditor will argue that the gift to the coowner
is complete. If that person files bankruptcy, loses
a lawsuit or has a tax lien, then your jointly owned asset
could be seized to collect the debt.
4 Your property could end up belonging to someone
you don’t intend. If you own property jointly with your
spouse, your spouse gets the property if you die first. Are
you concerned that someone other than your heirs would
eventually inherit your assets if your spouse remarried?
This can get especially complicated in blended families, as
your children can be disinherited in favor of stepchildren.
4 You could accidentally disinherit family members.
If you designate someone as a joint owner, you can’t control
what she does with your property after your death.
Perhaps you added your adult child as a co-owner of a
bank account so that she could help you pay bills if you
got sick but have the intention that whatever is left over
will be divided among all your kids. You should know
that jointly owned property all passes to the surviving
owner, regardless of your intention or what your will says.
4 You could have difficulty selling or refinancing your
home. All joint owners must sign off on a property sale. If
you disagree, you could end up at a standstill. What if your
co-owner becomes incapacitated through accident or illness?
You may have to petition a court to appoint a guardian to
represent the co-owner’s interest in the sale. An appointed
guardian may see his responsibility as protecting the other
owner’s interest, which may not be the same as yours.
4 You might trigger unnecessary capital gains taxes and
the need to file a gift tax return. When you sell a home,
you pay capital gains taxes on the increase in value. If you
make your child a co-owner during your lifetime, their tax
basis is the same as yours. But if you make a gift at the time
of your death, their tax basis is the value of the property at
the date of your death. This can be a significant income tax
savings for your heirs if the home has appreciated in value.
Also, any time you make a lifetime gift to someone other
than your spouse in excess of the annual limit – in 2020,
that’s $15,000 – the IRS considers that a taxable gift. You
can avoid taxes by using your lifetime exemption, but you
still have to file the necessary paperwork.
So what can you do? These decisions are too important
and complex to be left to chance. The best choice for how you
manage your property depends on your needs and goals.
Brittany Littleton owns and operates Littleton Legal.Her practice
focuses on business law, estate planning, elder law, trust administration
and probate. She is a firm believer that clients are
best served when their legal, financial and accounting advisors are
working collaboratively to strategize and advocate on their behalf.
A Signature Partner with BA Seniors, Littleton will write a
column each month covering issues such as how to avoid probate
court, mistakes to avoid in leaving an inheritance or emergency
decision documents every senior needs. If you have a question
that you would like answered or a topic you would like to see
covered, send your thoughts to Sean Simpson at sean@baseniors.
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