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The Pitfalls of Using Joint Accounts

Do you own property as joint tenants? Have you considered the planning pitfalls of this way of owning property? Ownership as joint tenants is so pervasive in our society that we don’t look at its downsides.

In joint tenancy, each person owns the entire asset, not a part of the asset. This legal fiction of two or more people owning 100 percent of the same asset is derived from the full name given to joint tenancy: joint tenancy with right of survivorship. “Right of survivorship” means that whoever dies last owns the property. The previous joint tenants merely had the use of the property while they were alive.

Joint tenancy property is “uncontrollable.” Even if a joint tenant intends to have his or her share pass to loved ones, the property is not controlled by the instruction in the joint tenant’s will or trust. Joint tenancy automatically passes to its surviving owners by operation of law.

Property that is owned in Joint tenancy can be a trap, because the term itself has nice connotations. It implies “the two of us,” a partnership, a marriage of title as well as love. On the surface, at least, it appears to be the right way for people who care for each other to own property. It’s psychologically pleasing, which for many people is the real advantage of owning their property jointly.

As in many other latent problems, joint tenancy is easy and convenient. Odds are that when you were married (if you are), one of the first financial actions you and your spouse took was to open a checking or savings account. The clerk who helped set up your account put it in your joint names when you answered yes to, “Both names on the account?” The same is true of your first house or your first car. It seems that all of those involved (primarily clerks and salespeople), whether or not they knew what they were doing, took control of your planning and titled your property in joint tenancy.

For most people, the disadvantages of joint tenancy far exceed any advantages. Some of the more devastating pitfalls of joint tenancy are:

1. There is no control, and property may pass to unintended heirs.

2. There are no planning opportunities.

3. For married couples, probate is at best delayed, not totally avoided.

4. For non-spousal owners, unintentional gift taxes and death taxes can be generated.

For more information about these specific pitfalls and on how to avoid them, please contact me at (248) 409-0256 or e-mail me at matt@ferrilawpllc.com.