When most people think about estate planning, they think about preparing a will, in which they bequeath all of their property to their relatives and friends. However, not all property passes under a will. Certain property including jointly owned property passes by operation of law, when one joint owner dies, his interest in the joint property passes directly to the other joint owner. This transfer is immediate, and no probate process is necessary.
There are many different types of property that you can own jointly, including bank accounts, stocks, cars, and real estate. Elderly people will often hold bank accounts or stocks in joint ownership with their spouse, with one or more children, or with friends.
Should you put property in joint ownership as part of your estate plan? The answer depends on your circumstances:
• When you don’t want to lose control.
Giving someone co-ownership gives him or her co-control. For example, if you make your children co-owners of your house, you cannot sell or mortgage the house unless all of them agree. If you do sell the house, your children may be entitled to part of the proceeds.
• When you cannot be sure of your co-owner.
An untrustworthy co-owner could withdraw all the money from a jointly held bank account, or creditors of the co-owner could put a lien on the co-owned property. Moreover, if the co-owner were to become legally incapacitated, you would not be able to sell or transfer titled property, such as a home, without going through a cumbersome court proceeding.
• When your intentions may change.
When you transfer property into joint tenancy, you make a gift of one-half of the property to the new joint tenant. If you later change your mind, it may not be possible to undo the gift.
• When you are using co-ownership to substitute for a will.
Joint tenancy is seldom a complete substitute for a will. The reason is that a deceased person almost always has some property that was not jointly owned, so probate may still be necessary. Joint tenancy also does not help if all the joint tenants die at the same time. Each joint owner still needs a will.
• When co-ownership might cause confusion after your death.
For example, it might be unclear whether a bank account held in joint ownership was created to help a child manage bill payments or whether the money in the account was intended as a gift. This type of confusion could cause strife among heirs.
Even if none of the above red flags seem to apply to you, you still should exercise caution in using joint accounts. They may result in expected tax consequences for either or both owners and may also affect your eligibility for public benefits such as Medicaid. Please contact us if you would like more information about the legal implications of joint property ownership.
This article is based on general principles of Wisconsin law, is for informational purposes only, and is not intended to provide legal advice. Each legal matter must be judged on the merits of its unique circumstances. If you have a legal problem, consult an attorney.
Richard A. Hauser is an attorney at Pinkert Law Firm LLP with offices in Sturgeon Bay and Sister Bay. 920.743.6505 or 920.854.2616.