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When two or more individuals hold title to real estate property together, the type of ownership that is very often used is called “joint tenancy with a right of survivorship.” Under this arrangement, each owner, referred to as a “joint tenant”, possesses an equal share of the property. And when one of the owners dies, their interest in the property is automatically revested equally to the surviving owners.
Joint tenancy is often used as a strategy to transfer ownership of a decedent’s share of a property without having to go through probate. While it is true that this form of ownership allows those involved to avoid probate, many people do not realize that this strategy can create other problems along the way. Because of this, it may not always be a good estate planning strategy , depending on the situation.
Disadvantages of Joint Tenancy in Estate Planning
Here are some of the potential issues that could arise when someone uses joint tenancy with the right of survivorship as an estate planning strategy:
Less Flexibility on the Use of the Property
If you become a joint owner with one or more other individuals on a piece of real estate property, it can complicate decisions about things you might want to do with the property while you are still living. Here is an example. Let’s say you and your children are joint owners of a vacation home. Later, you decide you want to sell or refinance the property. You would not be able to do either of these things without the consent of the other owners.
Exposure to Creditors/Liens
Joint tenancy opens the door to additional complications with the property if any of the owners runs into financial trouble. For example, if one of the owners has a court judgment against them (e.g., for debts owed or damages from a personal injury lawsuit), the judgment could result in a lien against the property. This means that whenever the owner(s) try to sell or refinance the property, the lien has to be satisfied.
Possible Family Tension
Joint tenancy can result in family conflicts depending on the situation. For example, a parent sometimes decides to make one of their children a joint owner of their real estate property for the purpose of helping them manage the property, take over in the case of incapacitation, etc. But when the parent passes away, that particular child becomes the sole owner of the property. This could create a lot of friction among the other siblings who may believe that they were treated unfairly.
Incapacitation
Speaking of incapacitation, if one of the owners becomes physically or mentally incapacitated and can no longer sign his/her name, the property cannot be sold or refinanced without the approval of the probate court.
Probate Avoidance is Only Temporary
Although joint tenancy is often seen as a probate avoidance strategy, the avoidance is really only temporary. Unless the property is sold, it will need to go through probate at some point when the last owner dies. So eventually, another estate planning strategy will need to be employed in order for the asset to bypass the probate process.
Why Trusts May Be a Safer Estate Planning Strategy vs. Joint Tenancy
Because of the numerous potential problems that can arise with joint tenancy, it is often advisable to set up a trust instead. Trusts can accomplish most of the same objectives as joint tenancy without the major drawbacks.
Some of the advantages of putting real estate property into a revocable living trust include:
Consult an Experienced Virginia Estate Planning Lawyer
Creating an estate plan that effectively accomplishes all of your objectives is not always a simple endeavor. Some ideas might seem good on the surface, but when you take a closer look, they may not make as much sense as you first thought. This is why it pays to work with a reputable estate planning attorney who thoroughly understands the ins and outs of this area of the law.
For strong legal guidance with estate plans in Virginia, contact Buck, Toscano & Terezkerz. Call our Charlottesville, VA office today at (434) 977-7977 or message us online to set up a personalized consultation with one of our attorneys.
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Phone: 434-977-7977
Email: btt@bttlaw.com
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