Asset Protection Strategies

Joint Tenancy and Joint Ownership

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Joint Tenancy / Joint Ownership

Probate is the legal process that resolves the question of ownership. People are often told to avoid probate by owning assets are "joint tenants".

Indeed, jointly owning property can prevent probate. If two people have a joint bank account, then the other can still get the money out if one dies. With jointly owned real estate, you can easily get the other person's name taken off the property with a death certificate.

But joint ownership is not a very good solution in most cases. Here is why:

Legal and Tax Liability

Putting additional names on a title (especially names in addition to a husband and a wife) can open up the property to all kinds of legal and tax trouble. You see, jointly owned property is usually considered to be 100% owned by both parties. So putting your kids' names on your house might seem like a good idea at first in order to avoid probate, until little Johnny has the IRS breathing down his neck for not paying some old taxes, or when Johnny's little business fails and his creditors come knocking, or until Johnny gets sued for hurting somebody and the plaintiffs come looking for all of Johnny's assets. Your house is one of his assets. His name is right there on the dead.

Gift Tax Problems

Besides all the risks, simply putting your child's name on a piece of real estate may trigger very large gift taxes. Simply adding Johnny's name to the title of your house (with say $150,000 equity) just made him a 50% owner for gift tax purposes. On paper, you have given him $75,000 and you are subject to a large gift tax liability.

Loss of Stepup in Basis

It is an income tax disaster when you "inherit" property via joint ownership.

If the property comes by joint ownership, it does not get a step-up in basis. When you sell the property, you pay income tax on all of the profit. This can cost a lot in income taxes.


Say your mother has a house now worth $150,000. She has had it for the last 20 years since your dad passed away (when they only paid $40,000 for it). Someone convinces her to put your name on the title so you can avoid probate when she dies. Without going into the gift tax problem, let's just say that you are now on the title as a joint owner.

When she dies, you become the sole owner of the property, and you wish to sell it immediately. When you sell the property for $150,000, you are now liable for income taxes of the difference of the selling price ($150,000) and the original basis ($40,000). You now owe income tax on an extra $110,000 this year! Say goodbye to about $25,000 of your money.

If you receive property because of a death through inheritance (inherit by will, probate, or trust), in the IRS's eyes, the property's value is "stepped up" to its fair market value on the death of the owner. If you inherit property and immediately sell the property, there would be no profit and thus no taxes.


Now let's say you inherited the same property from dear old mom. Since her estate was pretty much just the $150,000 house, there were no estate taxes due when she died.

Now if you sell the property immediately, the property has a new 'stepped-up' basis of $150,000. When you sell the property for the $150,000 that it is worth, you have no income tax liability.

Quite a difference! Don't fall for the Joint Ownership trap.

The Bottom Line is:
* Keep your kids names off of your property!
* And keep your name off of your parent's property!

There are much better ways to avoid probate than joint tenancy.

More Information on Correct Estate Planning Tools

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Lee R. Phillips
Lee Phillips - estate planning attorney and speaker

Estate planning attorney and renowned national speaker Lee R. Phillips reveals the valuable information that will protect you and your family from costly probate, estate taxes, lawsuits, and other mishaps of our legal and financial system.

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