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The Perils of Joint Tenancy with Your Adult Children
Despite your best
intentions, there's a trap in joint tenancy ownership with an adult child that
you may not have considered. While you may achieve your goal of avoiding
probate, your childs debts, lawsuits or divorce can jeopardize your ownership.
When you bought your first home, you probably took title in joint tenancy.
That's the way your parents and grandparents did it, and the real estate or
title agent probably told you that doing so would, when one of you dies, keep
the house out of probate.
It's not unusual for the surviving spouse to assume that, because joint tenancy
worked to avoid probate the first time, it will work just as well a second time,
for the benefit of the adult child who will inherit the house. Thus, the
surviving spouse decides to add an adult child to the deed, as joint tenant.
But there's a trap in joint ownership with a child that you may not have
considered. Here's a hypothetical to consider.
Five years ago, when his wife died, Edward became the sole owner of a
home and three rental properties that the couple had owned in joint tenancy.
Edward has two adult daughters, Gwen and Stacy. Stacy has three minor children.
Edward is disabled. Gwen visits daily to do light housekeeping, and she also
processes his bills and the bookkeeping for the rental properties. Edward
assigns her as joint tenant on deeds to his home and co-owner of the rental
properties. Stacy lives in another state and isn't involved in the upkeep of the
Edward's will indicates that he wants both daughters to benefit equally from his
estate, and that he wants a portion of its value to be set aside for his
grandchildren. Notwithstanding the provisions of Edward's will, the joint
tenancy deed takes precedence over the will, and immediately upon Edward's death
Gwen automatically would become the sole owner of all of the properties. With
respect to Edward's real estate holdings, Stacy and her grandchildren would be
Disaster Strikes, Estate Targeted
It gets worse. While Edward is still alive, Gwen causes an automobile accident.
She is unable to pay her medical bills, and her debts go into collection. The
other driver in the accident was seriously injured and sues Gwen. In the midst
of this lawsuit, Gwen's husband files for divorce, seeking half of his wife's
assets. Any property she owns, including the real estate she jointly owns with
her father, is in jeopardy.
Wanting to protect his estate, Edward decides to remove Gwen from the joint
tenancy and sell the properties. However, Gwen refuses, saying she deserves half
of the assets as payment for her caretaking duties. Edward must seek a court
order to remove her from the deeds.
Even if Gwen had never faced debt problems, a nasty divorce, or lawsuits,
Edward's final wishes for his estate might still have remained in jeopardy.
There are trust-based estate planning strategies that would have protected
Edward from losing control over his estate as a result of joint tenancy with a
child. Instead, he unwittingly fell into the joint tenancy trap.
As you can see from this extreme example, except for married couples, the
downside of joint tenancy outweighs any upside. Please consider these risks
carefully before holding property in joint tenancy with your adult child.