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Owning Property In Trusts Vs. Joint Tenancy

Joint tenancy is a way of holding of assets by titling the property jointly in two or more names. Although it is true that joint tenancy can avoid probate on the death of the first spouse, joint tenancy results in the entire estate being probated upon the death of the surviving spouse. Perhaps even more costly is the fact that property held in joint tenancy loses half of the stepped-up valuation otherwise available. If a couple held property that had substantially increased in value, the loss of the stepped-up valuation could be enormous.

Under joint tenancy, the survivor takes all and much planning flexibility is lost. The first loss is one of the two $11.2 million, ($22.4 million per couple) federal estate tax equivalent exemptions that all married couples are entitled to for 2018. This loss may not result in the payment of any federal estate taxes on the first death, since the unlimited marital deduction would prevent a tax on amounts passing to the surviving spouse. The heirs, however, will pay federal estate taxes of 40 percent on the first dollar transferred over $11.2 million.

Simply by using a trust containing a decedent’s trust, both $11.2 million equivalent exemptions can be saved, and a married couple can pass $22.4 million without paying any federal estate taxes.

If rather than holding property as joint tenants, the property was held in the husband’s name only, the problem with the loss of half of the stepped-up valuation could have been solved. (Mortality tables show that women of the same age and health as their husbands have a life expectancy advantage of eight years). If the wife inherited these assets upon the death of her husband, she would then own each asset at a full stepped-up basis, and if she then sold them at market value, her profit and capital gain taxes would be zero.

With simple “separate property” planning or better stated “unwinding” of asset ownership, the stepped-up valuation and both $11.2 million equivalent exemptions can be saved.

There are additional problems of holding title to property in joint tenancy with your children. Your child’s creditors could collect your child’s debts to them by attaching the child’s interest in the joint tenancy. Your child could decide to take their interest now and force a sale of the asset.

Holding property in joint tenancy has very few, if any, long-term advantages. The joint tenancy is sometimes called the “poor man’s will” but unfortunately is often used by people who are not poor in their later years. The joint tenancy holding of assets can give a couple a cozy feeling, a feeling of oneness that perhaps no other business concept can, but at a tremendous price to be paid later on.

Pay-On-Death Accounts

Like joint tenancy, pay-on-death accounts are a poor alternative to good estate planning. In most states, property is not allowed to be owned by using a “pay-on-death” deed.

For More Information About The Advantages Of Owning Property In Trusts

With more than 50 years of estate planning experience, the attorneys of Richardson & Richardson, LLLP, can craft trusts to own real estate and other assets. Call 931-841-9968 or complete our simple contact form to discuss trusts with an experienced estate planning lawyer. We have law offices in Tullahoma, Tennessee, and Stuart, Florida.