The biggest reason people own property in Joint-Tenancy is because they look at only one aspect of that type of ownership. A Husband may say … “If I die I want the house to go 100% to my wife without any Probate problems and visa versa.”
There are several undesirable side effects and unintended consequences when you own property in joint-tenancy. For example:
If one party gets a judgment against him/her, the entire property can be liened even though the co-tenant had nothing to do with the litigation. Even worse, the judgment holder might be able to force a sale of the property. Since the joint-tenancy interests are not separable, both of the tenants are affected by the lien.
If one of the joint-tenants becomes disabled, (declared legally incompetent), the other cannot sell, borrow against, gift or exercise any normal rights of ownership without a Probate Proceeding. (Permission from a judge) This is required until the joint owner either recovers or dies. Often permission to act is not given. Remember words, “With Rights of Survivorship”. The joint-owner has no disposition rights (rights to sell or encumber) the property, acting alone, unless the other joint owner dies.
Many advisors won’t allow their clients to hold property in joint-tenancy. Joint-tenancy leaves you terrible exposed to lawsuits. Some states will not allow title companies to use joint-tenancy as an automatic option of titling property when it is purchased. Joint-tenancy is only allowed if people actually request it. The title companies don’t give legal advice and will do it if asked. These states may realize that joint-tenancy is one of, if not the least desirable, method of property ownership.
What would cause a major problem with joint-tenancy? One way would be if one of the tenants were to be sued and lost. What would cause such a lawsuit? A major threat is from automobiles and other driven vehicles. If you or your children were to have a vehicle accident, your liability is almost unlimited. This is especially true if the accident kills or causes serious long-term injury to one or more people. These types of accidents can literally cause millions of dollars in damages. Most people cannot afford enough liability insurance to cover damages in those amounts. This leaves the rest of the driver’s property at tremendous risk. If you are a joint-tenant on a property… OOPS. The other joint tenant is immediately involved.
Other lawsuit are caused by: Divorce, environmental hazards, employees, creditors, business customers, competitors, regulatory agencies, rental property accidents, lead pain hazards in your home or rentals, guest accidents at your home, involvement in partnerships and leadership positions in civic organizations.
If one Joint-Tenant dies and the other then owns 100% of the property in her/his name and he/she later dies, the property will have to go through probate to be passed on to the heirs. When asked about that probability, the husband usually says, “Well, she can take care of that issue when the time comes.”. Wrong, widows are not in the mental position of “Taking Care of that issue” when they are grieving over losing their deceased husband.
Solution: By having your interest in property held and protected within special Trust instruments potential personal litigation may be unable to lien, garnish, seize or disturb those assets. Probate is not necessary because the entity owning the property doesn’t die triggering a Probate and unintended consequences are avoided
One vivid real-life example:
A friend of a client was referred to MDF Estate Planning because of a brewing problem. A middle-aged couple were planning on a trip to Hawaii and were nervous about flying. They wanted to make sure that if the plane went down and both of them were killed their house would not have to go through probate and their children would not be “inconvenienced”. Their imagined solution was to have their oldest son added on the deed on their house as a “Joint-Tenant” so that if the plane went down the son would have “Sole Rights of Survivorship” and the house would not have to go through the probate process. Well, the plane got them there and back safely, but they didn’t get around to taking their son off of the deed to the house. About a year later the son’s wife filed for divorce and one of the son’s assets was a recorded 1/3rd ownership in his parent’s house which was valued at $300,000. Therefore, the soon to be ex-wife was claiming half of his 1/3rd ownership….. The parents had to pay their ex-daughter-in-law $50,000 in the divorce settlement. That was an unintended consequence of Joint-Tenancy. The same would have happened if the son had been audited and found to owe a ton of money to the IRS or any other litigation.
(They later did their Estate Planning the better way and are now in great shape.)