April 19, 2021
Issues with Joint Ownership | Owning A Property Jointly With Someone Other Than A Spouse
Joint Ownership is great for Married Couples, but not so good for anyone else.
Attorney Chris Berry discusses several problems with naming someone other than your Spouse jointly to your Assets, in this episode of Daily Wisdom.
Estate Attorney and Advisor Chris Berry of Castle Wealth Group answers questions on retirement and estate planning every Wednesday at 1pm. Register via this link or give our office a call at 844-885-4200.
Castle Wealth Group and Christopher Berry help families with estate planning, elder law, retirement planning, and tax planning from their offices in Brighton, Ann Arbor, Livonia, Bloomfield Hills, and Novi.
Castle Wealth Group helps families with their legal, financial, and tax planning for their retirement and legacy.
With the use of legal structures like revocable living trusts, Castle Trusts (asset protection trusts), Chris Berry and Castle Wealth Group can help your family plan, protect, and preserve what is important through their Retirement and Legacy Blueprint Process.
Common Mistakes in Estate Planning
Hello, Chris Berry with Castle Wealth Group. Today, we’re going to talk about the estate planning mistake of owning property jointly with someone other than a spouse. If you like this information, please make sure to subscribe to our YouTube channel.
Christopher Berry is a leading estate attorney and advisor in the area of retirement and legacy planning. He has been featured in publications such as Forbes, Kiplinger’s, Crane’s Detroit and more. He’s the host of the weekly radio show and podcast The Chris Berry Show. He’s a national thought leader as it relates to retirement and legacy planning and as authored the the Amazon best selling book, The Caregiver’s Legal Guide.
So today we’re going to talk about one of the common estate planning mistakes we see that is joint ownership with someone other than a spouse. So there’s different ways that assets pass upon death. We call this estate administration. We have joint ownership, so joint on a checking account. One spouse passes away it goes to the survivor. Second would be beneficiary designations, naming a beneficiary on your life insurance, your 401k, third would be through a trust, different types of trusts. We have living trust. We have castle trust, which are asset protection trusts, but if an asset doesn’t pass through joint ownership beneficiary designation trust, then it ends up going into probate and that’s what we want to try to avoid because that’s a court process, it’s time consuming, et cetera.
Now, I didn’t mention a will. A lot of people think a will avoids probate, but it does not. A will controls the distribution upon death for any assets ending up in probate. So if you’re looking at avoiding probate, then you’re left with joint ownership, beneficiary designations, or a trust. Now let’s talk about joint ownership and why it’s great for a married couple, but it’s not so good for anyone else. So with joint ownership, I recommend that for married couples typically because it builds in a certain level of asset protection at least in Michigan, we have what’s called tenancy by the entireties. So if one spouse was sued on a piece of real estate and you owned it jointly, the home would be protected. Likewise, joint ownership is a great way to avoid probate for married couples.
Naming Anyone Jointly
You have a checking account or brokerage account, real estate, one spouse passes away it goes to the survivor, very clean, very easy, very straightforward. Now I wouldn’t recommend naming anyone else jointly on your assets because by doing so, you’re opening up a whole can of worms here. And the first one is a liability issue. So by naming someone joint on a piece of property, on a bank account, on a checking account, on a savings account, on a brokerage account, you’re opening yourself up to all of the liabilities of that person. So if they were to get a divorce, a lawsuit, creditor action, bankruptcy, you might lose that asset. So the first problem is the liability problem. The second problem is the tax problem. By naming someone jointly, you might destroy, what’s called step up in basis.
So for example, let’s say you bought a property for $100,000 and then you pass away, it’s valued at $300,000 and you pass it through a Ladybird deed or through a trust to your children. Now your children sell it for $310,000. Well, when you pass away, they get a step up in basis where now the value or the basis for their gains is $300,000 and if they sell it for $310, they only have $10,000 worth of gains. Now, if you pass it through joint ownership, you might lose that step up in basis. Where if you bought it for $100, date of death is $300 and the kids sell it for $310, they might have $210,000 worth of taxable capital gains that they have to pay taxes on. So the second reason why we don’t like joint ownership is because you could destroy that step up in basis. You could destroy the tax benefit of passing it through, say, a trust or through a Ladybird deed.
Third reason why we don’t like joint ownership is because now you’ve put this asset in their control. They have access to it and I’m not saying this is going to be your situation, but if you were to name a child or beneficiary joint on a bank account, they could take all the money out of that bank account. Or I saw a situation early in my practice where we had a dad, the second wife and the two kids all joints on a piece of property. Dad passed away, now it’s the two kids and step-mom, they don’t get along. Stepmom wants to sell, the other two kids don’t because they know when stepmom passes away, that whole property is coming to them versus if they sell now, they’re going to have to split the proceeds with stepmom. So by naming someone jointly, you give them an ownership stake in that asset. And fourth is what if that person needs longterm care? And I’ve seen this in my practice.
We had mom who named her daughter joint on her home as a way to avoid probate and then daughter needed longterm care and needed to qualify for Medicaid and they wanted mom to sell her home. So there’s a variety of reasons why joint ownership is not a great idea for anyone other than a married couple. If you’re married, joint ownership is fine. If you’re looking at a way to avoid probate or do something else, there’s almost always a better way other than joint ownership. For example, I hear a lot of times, “I want to name my kids jointly to my bank account, so they can take care of my affairs.” Well, if you get a knock in your head, that’s where a financial power of attorney comes into play. So with a well drafted financial power of attorney, they can take care of things. They can write checks for you if you don’t want to. And then I hear, “Well, I want to make sure that it goes outright to my kids so they can take care of funerals,” that type of thing.
Again, you have all these issues for why joint ownership’s a bad idea. One of the things you can do is set up, what’s called a final expense trust, which is money that would pay out immediately to your beneficiaries within 24 to 48 hours of passing so that they can take care of your final affairs, they can handle your funeral, et cetera, much better way other than joint ownership. And then again, I hear sometimes, “Well, I want to make sure that it avoids probate.” Well, that’s where you can add transfer on death or payable on death to the checking or savings account. So long story short, joint ownership is great for a married couple, but I would not recommend naming anyone else jointly to your assets. There’s almost always a better way. So this has been Chris Berry with Castle Wealth Group. Hopefully you found this information helpful. Thank you.
Castle Wealth Group has clients across the nation and helps families plan, protect, preserve what is important by creating a retirement and legacy blueprint.