Unintended Consequences of a Joint Tenancy

The Unintended Consequences of a Joint Tenancy in Colorado

There are many hazards to DIY estate planning, but using a joint tenancy is perhaps the most fraught.

In a joint tenancy, two or more owners share an undivided interest in an asset. If one owner dies, her share automatically passes to the other owner. No probate. No administration. The deceased owner’s interest simply vanishes, leaving the asset outright to the surviving owner. This “right of survivorship” is what makes joint tenancy such a compelling estate planning tool.

But like most things in life, this perceived simple solution carries unintended consequences. Here’s an overview of the most common unintended consequences: joint tenancy

When you make someone a joint tenant, you’re giving that person a gift. And when you make a gift of over $14,000 (the annual exclusion amount for 2016), you’re required to file a gift tax return. Failure to report a taxable gift could lead to IRS penalties.
Property owned under a joint tenancy is also subject to the liabilities and creditors of both owners. So if one owner develops creditor problems, files for bankruptcy, or goes through a divorce, then the other owner could be negatively impacted.
Because each joint tenant has an undivided interest, they all share equal control over the asset. This could be problematic if the joint tenants’ relationship sours.
And because joint tenants all share control, each owner needs to agree before selling, transferring, or encumbering the asset. This could be a serious problem if one owner loses capacity and is unable to contract. In that case, the other owner may have to petition the court for a conservatorship.

As you can see, there are numerous unintended consequences to forming a joint tenancy. That’s not to say joint tenancies are never useful. They certainly serve a purpose. But before entering into a joint tenancy, especially if the goal is to avoid probate, consult an experienced estate planning attorney.

For a no obligation estate planning consultation, contact us here or call 720-588-9830.