Why Joint Tenancy Isn't The Best Way To Prevent Probate


It is fairly common for individuals to attempt to keep their estate out of probate by arranging to have their assets put into joint tenancy. While this may be an effective means of avoiding probate in some cases, there are some definite pitfalls to this technique.

In the following scenarios, the joint tenancy technique could cause problems down the road:

The loss of "stepped-up valuation"

Stepped-up valuation is the revaluation of assets that have appreciated in value. Generally, assets should be evaluated for stepped-up valuation at the time of inheritance. However, in the case of joint tenancy, the surviving owner of an estate will not only lose the advantages of stepped-up valuation, but might also face a heavy tax burden if he or she decides to sell any of the passed-on assets. 

The need to cover legal fees

Even if joint tenancy helps prevent an estate from going into probate, it will still require the family to cover potentially expensive legal fees in the future.

When the owner of an estate dies and the estate goes to the designated joint tenant, at least some of the estate assets will probably need to be transferred to the name of the survivor. This is not likely to be a simple procedure, and it will generally require future legal assistance. 

The eventual need to transfer ownership makes joint tenancy an incomplete solution to the probate issue. 

Asset liabilities

Joint tenancy leaves estate assets susceptible to seizure because of financial liabilities of the estate's joint tenant. This is an especially significant risk if joint tenancy is arranged with a child. If the child is in debt or entangled in financial problems, estate assets could be seized and lost to the rest of the family. 

The inability to protect all assets

Usually, joint tenancy will only protect certain assets from probate. In joint tenancy, certain assets will need to be titled appropriately to be passed on through joint tenancy in such a way that they avoid probate. Using joint tenancy could create a situation where some of the estate gets passed on as planned to the survivor but a significant portion of the estate gets forced into probate. 

Eventual probate

In the best of cases, joint tenancy will probably only postpone probate. It will at least require further legal services in the future so that arrangements can be made for when the surviving spouse or descendant dies.

If joint tenancy passes on the estate to a spouse, it's important to realize that the surviving spouse may die soon afterwards, leaving the estate subject to probate. 

For more information about probate administration, contact professionals like Davis and Mathis.


19 May 2015

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